Understanding Foreign Trade Zone Benefits

The good news: your new stock is arriving from overseas.  The bad news: you don’t actually need to use it for another 6 months.  This is where use of a foreign trade zone (FTZ; also called a “free-trade zone”) can be an effective cost-saving component of your logistics operation.  Along with a variety of other foreign trade zone benefits, FTZs allow your product to be stored, assembled, and/or processed with U.S. Customs duties deferred until the product is ready for public consumption.

What are Foreign Trade Zones?

Located in or near U.S. ports, foreign trade zones are secure areas that are under U.S. Customs and Border Protection (CBP) supervision, though considered outside of CBP territory.   Merchandise may enter the U.S. via a FTZ without a formal customs entry, without payment of customs duties or excise taxes, and without a thorough examination.

When the product is ready to formally enter the United States, these duties and taxes will then become due – on the product itself or its imported parts, whichever is lower.  If, however, the final product is exported from the U.S., then no customs duty is levied.

For example, let’s say that lawnmowers are shipped from overseas to an FTZ in the U.S. for a part to be added to each mower.  The finished mowers never leave the FTZ before being shipped back out of the country.  No duties would be paid in this instance as formal entry into the U.S. never occurred.

In a similar example, products arrive at a FTZ but are found to be damaged.  The return shipment can be exported without any formal entry and thus without duties being paid.

Foreign Trade Zone Benefits

The primary benefit of using an FTZ is the cost deferment described above, allowing companies to hold on to their cash longer.  Other key benefits include:

  • Speedier customs clearance and lower fees. Product receipts can be logged weekly as a summary entry with Customs. This results in a less paperwork and single processing fee, versus a fee for each individual entry.
  • Ability to change/alter products quickly. Products can be sorted, cleaned, repaired, assembled, manufactured, exhibited, sold, repacked, and mixed with foreign and domestic goods. All are allowed within the FTZ.
  • Stringent security measures.  CBP security requirements provide protection against theft.
  • No time restrictions.  Merchandise may remain in a zone indefinitely, whether or not subject to duty.
  • Transfer between FTZs.  Products can be transferred between FTZs without duties being assessed.

Lean on a 3PL to Navigate Foreign Trade Zones

In the minds of many companies, the benefits of a FTZ are nice but may not be worth the headaches that come with the paperwork and requirements involved.  And, there certainly are paperwork and filings required – with the CBP as well as freight forwarders.  Because of this, many companies turn to a third-party logistics (3PL) provider specializing in FTZs to explore the feasibility of using a foreign trade zone for their business, and to ultimately manage the operation if they proceed with it.  Such 3PLs have the experience, the capabilities, and the relationships to simplify the FTZ landscape.

Kanban FTZ Services

Kanban Logistics is an East Coast 3PL that specializes in FTZ services.  Kanban operates the only activated, general purpose foreign trade zone in Eastern North Carolina – offering 175,000 square feet of modern, climate-controlled storage space with rail siding, and a full service transload yard.

To read about Kanban’s FTZ services in action, see the FTZ case study which looks at a manufacturer of conveyor belts that imports raw materials from Taiwan into the Port of Norfolk.  The materials are shipped directly to Kanban’s FTZ warehouse, where they are stored until needed at three nearby manufacturing plants. The company avoids payment of customs duties until product leaves the FTZ.

Contact us today to learn how we can deliver similar foreign trade zone benefits for your company.