U.S. exports from foreign trade zones are outpacing total exports as the duty-free areas become easier for shippers to tap, encouraging more companies to set up shops within the zones.
Exports from FTZs rose 56 percent in calendar year 2011 compared to fiscal year 2010 to $54.3 billion, while total exports increased 21 percent in the same period, according to the Foreign-Trade Zones Board. The value of goods brought into FTZ zones in 2011 increased 20 percent to $640 billion compared to fiscal year 2010.
Because of a change in the board’s reporting period, a calendar year-over-year comparison isn’t available, said Daniel Griswold, president of the National Association of Foreign-Trade Zones. Even so, the 2011 growth suggests that FTZs will continue to gain a greater market share of total exports and become more pivotal in global supply chains.
“FTZs offer a competitive advantage,” he said. “They allow companies based in the U.S. to reduce their costs of sourcing and gain a stable footing with global competitors.”
Through FTZs, companies that ship into the U.S. only pay the duty on the final product, instead on each foreign component. The zones complement the near-sourcing trend, in which companies move production closer to U.S. consumers to cut down on transportation costs. Because shippers don’t have to pay U.S. duties on final products shipped abroad, they can use the zones as hubs for domestic and foreign distribution.
The growth in exports from FTZs defies the common misconception that the designations are primarily about the import of finished products. For example, BMW exports 72 percent of the cars it produces out of its FTZ-designated Spartanburg, S.C., facility, Griswold said.
Exports out of FTZs are outpacing total exports partly because the companies that tend to locate within the zones, such automobile manufacturers, oil refiners and pharmaceutical makers, tend to be globally competitive, Griswold said. But it’s also because the number of FTZ and the companies that locate within the zones are growth. The number of companies operating in FTZs expanded to 2,800 in fiscal 2011 from 2,500 in fiscal 2010, and three new zones came online last year.
Oil and petroleum companies still are the largest users of FTZs, but they are losing ground to auto manufacturers and retailers as those respective industry gains and the U.S. energy boom solidifies. Griswold pointed to Crate & Barrel, Under Armor and Columbia Sportswear as some major retailers that have increased their use of FTZs in recent years.
He expects to see more companies locate within FTZs because of new regulations that took effect in April. The streamlined rules allow a company to receive FTZ designation in generally 30 days or less, instead of the six to eight months the process used to take. The FTZ approval process takes about three months for manufacturing companies, and shippers that bring in components for which there is domestic sourcing available should expect a longer wait for approval.
A new rule that took effect in 2008 allows shippers to bring the FTZ designation to their facilities, instead of having to locate no more than 60 miles or a 90-minute drive from the port of entry. The change makes it more attractive to shippers to apply for FTZ status, as they don’t have to move their facilities to generally costlier space near the port. Of the 250 FTZ zones throughout the country, 170 are active and 100 have gained the alternative site designation.