Manufacturers have seen major supply chain issues recently,
resulting in product shortages and heightened trade costs. In this
QAD Precision Report, we outline how Foreign-Trade Zones can help,
delivering three key benefits to the bottom line.
Global supply chains are facing the greatest strains seen in recent
history. Shipping containers are grinding busy ports to a standstill,
while consumer demand has resulted in higher prices and spiking
A report from Moody’s in mid-October assessed the current
situation, stating that “things are likely to get worse before they
get better.” Experts believe that supply chain issues will continue
well into 2022.
There has been some
relief in US port congestion in November. Some experts reckon
the worst of the crisis has passed, but warn that a number
of issues remain. Many manufacturing businesses have borne the
brunt of these issues. Shortages of goods critical key parts (such as
microchips for vehicles) have hampered supply lines even further, many
of which were strained
prior to the pandemic.
US based manufacturers are working to recover in any way they can. As
a result, many are considering operational changes to ensure that
mission critical imports are always available.
Often, manufacturers will turn to global trade management solutions
to help navigate these costs and complex regulations. Tariffs, taxes,
and customs regulations can be difficult to navigate for any product
shipped into the US from overseas. What’s more, mistakes made during
entry through US Customs and Border Protection(CBP) can be extremely costly.
Tariffs can also be unfavorable depending on where companies source
critical parts. This can impact the competitiveness of US
manufacturers. This is especially the case if the manufacturer is
assembling goods in the US and shipping the final product overseas.
US-based manufacturers that supply both the domestic and international
market should seriously consider leveraging the US Foreign-Trade Zones
program to cut their tariff burden.
Zone (FTZ) reduces the import costs and duties associated with
shipping products from foreign sources. CBP considers FTZs as outside
of the country for tax and duty purposes.
FTZs provide manufacturers three key benefitsthat can help reduce
operating costs as supply lines struggle to recover from the
pandemic. We discuss these below.
CBP monitors FTZs, but they are largely operated by whoever manages
them. Manufacturers can assemble individual parts within the FTZ into
a new product. After that, manufacturers either send the final
products out of the zone into US commerce, or ship these abroad to
different countries. This can offer reduced tariffs and savings on
duties, particularly during the process of importing goods into the zone.
A company using an FTZ can reduce tariffs on “inputs” brought into
the zone. The company only pays duty on the finished product once
assembled, and entered into the domestic market for sale. In some
cases, the tariff on a finished product might be lower duty rate — or
even zero — when it enters the US market.
Without an FTZ, the manufacturer would be liable to pay duties on all
the multiple imported components that make up the product. This can
result in huge savings for manufacturers when they import large
quantities of “inputs” to be assembled and then sold to US customers.
Since duty is not charged on anything that leaves the US, many
manufacturers use FTZs to assemble and ship products to international
locations without paying any duties on them at all. Any product that
enters a FTZ that is either shipped to a new foreign location, or
scrapped because of waste, is not subject to typical duties on imports.
This makes FTZs a perfect location to set up assembly operations for
businesses that frequently send products abroad but want to keep their
business in the US.
Since goods are only subject to duties once they leave the FTZ, the
zone can act as a buffer and storage location depending on demand for
products. As mentioned above, any product that doesn’t enter the US is
not subject to duties until it leaves the zone. This allows businesses
to control the flow of capital surrounding their FTZs, only paying
duties on products when they go to market.
This can be of further benefit to industries like retail, or any
business where entry is subject to quotas by CBP. Companies with
higher capital costs can also see benefits, as they may need to delay
paying duties on a particularly large shipment of goods.
Whether decreasing duties on crucial imports or increasing the
flexibility of a supply chain operation, partnering with a global
trade management provider that makes good use of these tactics sets
manufacturing businesses up for success in an uncertain future.
A good FTZ solution provider should be able to show cash flow
benefits. There are costs to leveraging the FTZ program. Therefore,
your provider should be able to break that down for you so that you
have a clear understanding of both the savings and FTZ administration costs.
This should include not only duty savings, but also potential import
costs savings due to the weekly entry program applicable to zone
users. For high volume importers, a single weekly Merchandise
Processing Fee (MPF) for Customs entries can yield as much, or more,
in savings as lower duties.
When looking for a good global trade management partner, be sure to
ask about the cost benefits of using a FTZ, as well as their offerings
for accurate product classification, improved compliance, and
consolidated tracking. These benefits can help ensure that goods flow
smoothly through shipping hubs, saving precious time and money in the process.
To discuss how an FTZ could benefit your business, reach out today.
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ZONES: Q&A WITH FTZ EXPERT GREG JONES
WAYS ENTERPRISES CAN SAVE MONEY WITH FOREIGN-TRADE ZONES
PRESIDENTS, TARIFFS & THE BENEFITS OF FOREIGN TRADE ZONES