Why Companies Prefer to Use a FTZ For International Trade
Shipping and logistics can often span to multiple areas throughout the world, which means dealing with international trade laws and global market rules. This includes customs duties, taxes and tariffs, and other bureaucratic regulations. For US-based shippers, this can mean expensive costs and complicated instructions. The U.S. Customs and Border Protection (CBP) created secure areas outside of their typical jurisdiction, known as Foreign-Trade Zones (FTZ).
Understanding Foreign Trade Zones
The Foreign Trade Zones Act was established in 1934, during the Great Depression, to help expedite foreign trade while lower costs for US operations that were engaged in international commerce. In this day, an FTZ is an area that operates under CBP supervision in areas where special procedures can be used to encourage US trade activity. These zones are located within or adjacent to CBP ports of entry in the United States. They are known internationally by many names, most commonly free trade zones.
Essentially, an FTZ is an area where goods can be traded internationally without being subjected to the typical quotas and tariffs. They are subject to the rules and regulations of the US in addition to the area in which the merchandise is located.You May Also Like: “4 Tips for More Successful International Shipments”
Benefits of Foreign Trade Zones
As you may know, producing a finished product usually requires raw goods from a variety of manufacturers, often located in various parts of the world. Without the FTZ agreement, companies trying to import their finished goods into the United States would be forced to pay tariffs on all the components to the assembly location as well as into the US. Instead, an FTZ offers the advantage of avoiding all import duties as long as the goods are stored, repackaged, or prepared in an FTZ.
This way, companies only have to pay the import tariff into the United States. This provides an obvious financial benefit for companies who may be subjected to inverted tariffs or duties on waste or yield loss. Without a zone, after all, all items entering the area will be subject to import tax. For companies that generate a lot of scrap or waste to create their merchandise, this means having to pay tariffs on everything, even if some will be lost in the production process. With an FTZ, you will only be required to pay taxes on the finished product, which saves you tariffs on any materials that are lost during the yield of your goods.
Inverted tariffs pose an issue for companies that wish to make their products in the United States. This is another reason why companies utilize the FTZ program. In many cases, a raw good can have a higher import tax than the finished product itself would. This gives people creating goods outside of the U.S. an unfair financial advantage over their domestic competition. The FTZ program allows for duty reduction on these inverted tariff situations to help level the playing field.
Not to mention, storing your goods in an FTZ gives you the safety and reliability of a CBP supervised facility. Systems are implemented to help companies that make multiple deliveries save money by only having to pay for weekly Customs entries, versus having to pay for each individual one. Promptus, LLC has licensed Customs Brokers available on staff to help ensure your company submits all necessary paperwork to avoid any penalties or additional duties.
Choosing the Right Type of FTZ
There are two types of foreign trade zones available for global logistics needs: general-purpose zones and special-purpose zones.
- A general-purpose zone must be available to multiple companies and is only available for warehousing. These are better suited for smaller companies and corporations that do not need an ongoing FTZ arrangement.
- A special-purpose FTZ is available exclusively for to a single company for a carefully designated purpose. These are better for manufacturing plants or distribution facilities too far from other industrial areas.
This is where a 3PL comes in handy. If you are not sure which type of FTZ is best for you, we are happy to offer you a consultation and quote for services. Promptus, LLC works closely with each business to understand exactly what type of logistics services they need to maximize efficiency. We provide full-scale freight forwarding services, including ocean shipping for companies of all sizes. Together, we can determine where and how you should be using FTZs to your advantage.
Promptus, LLC Delivers the Future of Freight Forwarding
Promptus, LLC can help you to save money and take advantage of a number of benefits that you can achieve by using an FTZ. We allow you the technology to track your inventory, keep up with manufacturing progress, and manage high-volume operations from within the FTZ. With over 15 years of service, Promptus can provide importer and exporters with all their global logistics needs. Call us today at 305-687-1405 to get your free quote today!