Manufacturers Discover
Benefits of FTZs
Benefits of FTZs
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Brandi Hanback Rockefeller Group |
Many companies don't understand the benefits of the Foreign Trade Zone program.So says Brandi Hanback, managing director of Rockefeller Group Foreign Trade Zone Services.
She should know. Prior to joining Rockefeller Group, Hanback served for 10 years as executive director of the National Association of Foreign Trade Zones.
In that position, she represented the interests of FTZ grantees, operators and users through interaction with officials in the U.S. Department of Commerce, U.S. Treasury Department, U.S. Customs Service, Office of the U.S. Trade Representative and key congressional committees related to international trade.
Now based in Annapolis, Md., Hanback assists global companies with foreign trade zone feasibility, approval, activation and operation. Her clients include large manufacturers and distributors engaged in importing and exporting. She helps clients on a broad range of issues dealing with classification, valuation, trade agreements, compliance reviews, prior disclosures, ruling requests and government correspondence.
Hanback's other experience includes forming the TradeStar Advisory Services consulting group and working as a senior manager and area leader at KPMG LLP, where she advised clients on issues related to international trade compliance and cost-reduction strategies.
In a recent interview with Site Selection magazine, Hanback discussed the benefits of locating an industrial company in an FTZ and some of the recent legislative changes that have enhanced those benefits.
Site Selection: Do most industrial companies properly understand what the Foreign Trade Zone program is all about and how it can help them?
Brandi Hanback: Many companies don't really understand the benefits of the program. There are a lot of misconceptions. It does take some time to successfully introduce and operate in an FTZ. The FTZ program also takes some time to establish. The companies that we work with, we typically work with them on a supply-chain basis. The project could be a relocation or a consolidation, or it could be an FTZ designation in an existing property.
SS: What are the major advantages of locating a company's operations in an FTZ?
Hanback: The three most basic benefits are duty deferral, duty elimination and duty reduction. Duty deferral means that imported products admitted to the FTZ are not entered into the Customs territory until their withdrawal from the FTZ. Therefore, users obtain a cash-flow savings by deferring Customs duties until the merchandise leaves the FTZ for consumption in the U.S. Duty elimination means that imported products admitted to the FTZ and subsequently destroyed in the FTZ or exported from the FTZ are not subject to Customs duties. Duty reduction means that imported products admitted to the FTZ can be placed in a special status that allows the merchandise to be classified and appraised in its condition as withdrawn from the FTZ. For manufacturers, this means that an imported component with a higher rate of duty can be classified and appraised in its finished product form, with a potentially lower rate of duty, thereby reducing the amount of duty owed.
SS: How has industrial plant activity in the FTZ program changed over the years?
Hanback: Trade policy generally is a pretty dynamic thing. Exchange rates, ability of trade based on outsourcing -all of these issues play a role. If you look at the FTZ program over the last 20 to 30 years, you see a steady increase in volume of activity in the program. Manufacturing operation in New Jersey is one of the better examples. Many manufacturers now use the program - pharmaceuticals, energy companies, automotive companies, and even the cosmetics and fragrance industries. Blending operations also can be located in an FTZ. Value-added activity can be done there. Chemical plants, oil refineries, even retail companies operating warehouses - all of these represent new types of uses facilitated by recent legislative changes.
SS: What were those legislative changes?
Hanback: One major legislative change in 2000 enabled companies to facilitate movement of goods in and out of a facility. From a just-in-time inventory perspective, the FTZ program offers significant benefits. Users may obtain permission from Customs to move merchandise directly from the port of arrival to the FTZ, avoiding delays at congested ports and minimizing exams. On the outgoing side, users may obtain permission to ship unrestricted weekly - 24 hours per day, seven days per week - based on an estimate approved by Customs before the start of the business week. Broker fees and merchandise processing fees paid to Customs may be significantly reduced by filing one entry per week versus daily entries or one per shipment. Goods move in and out of the facility on an expedited basis, allowing for a seamless supply chain from vendor to customer without maintaining unnecessarily high levels of inventory. This greatly reduces the expenses associated with Customs reporting. You file only 52 entries per year, as opposed to a thousand or more per year. The associated costs of filing and managing that many reports are high.
SS: Please describe the benefits of Zone-to-Zone Transfer.
Hanback: If the company utilizes more than one FTZ, merchandise may be transferred from zone to zone in order to extend the deferral benefits further. This benefit can be implemented up and down the supply chain by incorporating the activities of suppliers and customers. This takes more of a supply-chain view. It looks at not only the individual location of the plant but also sister locations within the same company as well as the vendor locations. You can send items to a customer in another distribution center in an FTZ and save costs. You can structure movement of goods to allow movement from zone to zone, putting off the costs of paying the Customs duty until the last stop before leaving the zone.
SS: How does the production equipment rule help companies?
Hanback: Certain duty deferral and reduction benefits also apply on production equipment admitted to the FTZ for assembly and testing prior to use in production. When you turn it on for use in production, then you pay the duty rate.
SS: Are FTZs a suitable location for automotive plants?
Hanback: Automotive assembly plants, with adequate planning, can be designated as an FTZ. It also makes sense in some instances to pursue co-location of assembly plants and suppliers in an FTZ. A good example is BMW. They are doing this in South Carolina and other places as well. This requires some planning and operational changes.
She should know. Prior to joining Rockefeller Group, Hanback served for 10 years as executive director of the National Association of Foreign Trade Zones.
In that position, she represented the interests of FTZ grantees, operators and users through interaction with officials in the U.S. Department of Commerce, U.S. Treasury Department, U.S. Customs Service, Office of the U.S. Trade Representative and key congressional committees related to international trade.
Now based in Annapolis, Md., Hanback assists global companies with foreign trade zone feasibility, approval, activation and operation. Her clients include large manufacturers and distributors engaged in importing and exporting. She helps clients on a broad range of issues dealing with classification, valuation, trade agreements, compliance reviews, prior disclosures, ruling requests and government correspondence.
Hanback's other experience includes forming the TradeStar Advisory Services consulting group and working as a senior manager and area leader at KPMG LLP, where she advised clients on issues related to international trade compliance and cost-reduction strategies.
In a recent interview with Site Selection magazine, Hanback discussed the benefits of locating an industrial company in an FTZ and some of the recent legislative changes that have enhanced those benefits.
Site Selection: Do most industrial companies properly understand what the Foreign Trade Zone program is all about and how it can help them?
Brandi Hanback: Many companies don't really understand the benefits of the program. There are a lot of misconceptions. It does take some time to successfully introduce and operate in an FTZ. The FTZ program also takes some time to establish. The companies that we work with, we typically work with them on a supply-chain basis. The project could be a relocation or a consolidation, or it could be an FTZ designation in an existing property.
SS: What are the major advantages of locating a company's operations in an FTZ?
Hanback: The three most basic benefits are duty deferral, duty elimination and duty reduction. Duty deferral means that imported products admitted to the FTZ are not entered into the Customs territory until their withdrawal from the FTZ. Therefore, users obtain a cash-flow savings by deferring Customs duties until the merchandise leaves the FTZ for consumption in the U.S. Duty elimination means that imported products admitted to the FTZ and subsequently destroyed in the FTZ or exported from the FTZ are not subject to Customs duties. Duty reduction means that imported products admitted to the FTZ can be placed in a special status that allows the merchandise to be classified and appraised in its condition as withdrawn from the FTZ. For manufacturers, this means that an imported component with a higher rate of duty can be classified and appraised in its finished product form, with a potentially lower rate of duty, thereby reducing the amount of duty owed.
SS: How has industrial plant activity in the FTZ program changed over the years?
Hanback: Trade policy generally is a pretty dynamic thing. Exchange rates, ability of trade based on outsourcing -all of these issues play a role. If you look at the FTZ program over the last 20 to 30 years, you see a steady increase in volume of activity in the program. Manufacturing operation in New Jersey is one of the better examples. Many manufacturers now use the program - pharmaceuticals, energy companies, automotive companies, and even the cosmetics and fragrance industries. Blending operations also can be located in an FTZ. Value-added activity can be done there. Chemical plants, oil refineries, even retail companies operating warehouses - all of these represent new types of uses facilitated by recent legislative changes.
SS: What were those legislative changes?
Hanback: One major legislative change in 2000 enabled companies to facilitate movement of goods in and out of a facility. From a just-in-time inventory perspective, the FTZ program offers significant benefits. Users may obtain permission from Customs to move merchandise directly from the port of arrival to the FTZ, avoiding delays at congested ports and minimizing exams. On the outgoing side, users may obtain permission to ship unrestricted weekly - 24 hours per day, seven days per week - based on an estimate approved by Customs before the start of the business week. Broker fees and merchandise processing fees paid to Customs may be significantly reduced by filing one entry per week versus daily entries or one per shipment. Goods move in and out of the facility on an expedited basis, allowing for a seamless supply chain from vendor to customer without maintaining unnecessarily high levels of inventory. This greatly reduces the expenses associated with Customs reporting. You file only 52 entries per year, as opposed to a thousand or more per year. The associated costs of filing and managing that many reports are high.
SS: Please describe the benefits of Zone-to-Zone Transfer.
Hanback: If the company utilizes more than one FTZ, merchandise may be transferred from zone to zone in order to extend the deferral benefits further. This benefit can be implemented up and down the supply chain by incorporating the activities of suppliers and customers. This takes more of a supply-chain view. It looks at not only the individual location of the plant but also sister locations within the same company as well as the vendor locations. You can send items to a customer in another distribution center in an FTZ and save costs. You can structure movement of goods to allow movement from zone to zone, putting off the costs of paying the Customs duty until the last stop before leaving the zone.
SS: How does the production equipment rule help companies?
Hanback: Certain duty deferral and reduction benefits also apply on production equipment admitted to the FTZ for assembly and testing prior to use in production. When you turn it on for use in production, then you pay the duty rate.
SS: Are FTZs a suitable location for automotive plants?
Hanback: Automotive assembly plants, with adequate planning, can be designated as an FTZ. It also makes sense in some instances to pursue co-location of assembly plants and suppliers in an FTZ. A good example is BMW. They are doing this in South Carolina and other places as well. This requires some planning and operational changes.
