Foreign trade zones in the U.S. are enjoying a boom, partly because shippers are increasingly using the zones for exports, and even for distribution of retail products without any domestic components.
While manufacturing firms, especially automakers, have been the main users of FTZs, retailers are using the tool in greater numbers though some of the largest retailers such as Wal-Mart don’t. Retail shippers, including The Coleman Group and Kawasaki Motor Manufacturing, told JOC Inland attendees last October they are embracing FTZs in Kansas City.
Backed by the recent success, FTZ proponents are lobbying Customs and Border Protection to expand a key benefit to third-party logistics companies, give shippers more flexibility and reducing paperwork. They can point to some major stats on why the momentum needs to continue.
The value of freight moving through the nation’s 174 FTZs jumped 14.4 percent to $732 billion in 2012 from the year prior. The amount of goods exported out of the zones rose 29 percent in the same period to $70 billion, accounting for roughly 4.5 percent of U.S. outbound shipments in 2012, according to Foreign-Trade Zones board statistics. By comparison, total U.S. exports expanded about 4.8 percent in 2012 to $2.2 trillion, according to the Department of Commerce. The 2012 FTZ statistics are the most recent available numbers from the agency, which is under the supervision of Customs.
There are many reasons for the growth in shippers using the zones and the amount of freight moving through them. The zones benefit companies that are importing goods into the U.S. and add value to them, whether that’s a U.S. component or altering them for customer specifications, such as tinting vehicle windows.
Companies that manufacture, assemble and package within FTZs have a choice of paying the duty of the final product or its foreign components, with the former often being cheaper. Shippers can also use the FTZs as export hubs because they don’t have to pay U.S. duties on final products that are re-exported.
FTZs can also help shippers increase cash flow. High-tech companies, for example, don’t have to pay duties on imported production machinery until works begins on the assembly line, said Daniel Griswold, president of the National Association of Foreign-Trade Zones. Retailers also use FTZs even though they don’t receive any duty savings on the importing of garments and clothing through the sites. That’s because retailers consolidate their merchandise processing fees into a weekly payment instead of having to do it each day for each shipment as required when operating outside an FTZ.
Changes to FTZ regulations also make it easier for companies to use the zones. New rules allow companies to receive FTZ designation in 30 days or less, instead of eight months.
Even more importantly, since 2008, companies can bring an FTZ designation to existing facilities instead of having to locate no more than 60 miles or a 90-minute drive from the port of entry. Those changes helped spur 400 more companies to take advantage of the 174 FTZs across the nation, bringing total users to about 3,200 in 2012.
But more could be done to make the FTZs even more attractive, Griswold said. One way would be to allow third-party logistics companies to utilize direct delivery, or shippers’ ability to import goods into the zone and notify the agency within 24 hours, instead of going through the process between the port and FTZ site.
“Direct delivery can cut delivery one to two days,” Griswold said. “From a security angle, it’s safer as Customs says, ‘Goods at rest are at a higher risk.’ ”
Third-party logistics firms that handle shippers’ cargo in FTZs can’t tap the benefit, nor can subsidiaries of FTZ users that are handling a shipment on behalf of their sister companies.
In a meeting with Customs officials last month, Griswold asked them to test an expansion of direct delivery through an ongoing pilot. The pilot is measuring two others ways that NAFTZ believes FTZs can be improved: potentially easing the five-day rule and no longer requiring importers to report how they are adding value to the products.
Under the current five-day rule, shippers have to clear out all freight from the zone once they pay duties on the goods. Griswold questions why it’s critical for users to have goods out of the FTZ site if the duties have already been paid.
The pilot is currently testing the effect of allowing shippers to keep goods on site 90 days after paying duties. There is also no need for FTZ users to annually report exhibiting, product manipulation or manufacturing to Customs when those types of actions are already permitted. The pilot is currently allowing some FTZ users to be exempt from filing the report.