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Company applies for trade status

Posted: May 27, 2012 1:55 a.m.
Updated: May 27, 2012 1:55 a.m.

Mike Klepfer, executive vice president of operations for AMS Fulfillment, stands in the company’s Valencia warehouse on Thursday.

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Pursuing an ambitious project to benefit clients and grow its own business, AMS Fulfillment of Valencia is working on securing foreign trade zone, or FTZ, status.

The third-party order-fulfillment, warehouse and shipping business is now at the tail-end of a nearly two-year certification process.

The status essentially allows AMS to act as a port, clearing its client's merchandise through U.S. Customs and Border Protection; all while creating significant savings, thereby improving cash flow for clients.

The closest foreign trade zones are in Palmdale and Tejon Ranch, each somewhat equal distance to Santa Clarita.

"If we can bring more business to AMS, we can put more people to work," said Michael Klepfer, executive vice president of operations for AMS.

In order for AMS to become part of a foreign trade zone, however, it had to borrow land allotments from the city of Palmdale, which is in such a designated zone.

Zone 191

"There is only so much land allotted in the country," said John Bevacqua of Deluxe Media Management, who has been consulting with AMS. "It's very highly regulated. You have to designate the square footage of a facility and certify it before you can be an operator in a FTZ."

Located in FTZ No. 191, the Santa Clarita Valley is included in Palmdale's service area, said Kari Blackburn, senior economic development project manager with the city of Palmdale's Community Redevelopment Agency.

"We pulled a swatch of land out of Fairway Business Park, deactivated it and put an equal amount of land at AMS Fulfillment's center," Blackburn said.

AMS will use the building located at 29120 Commerce Center Drive for FTZ designation; one of 13 it operates out of in the Valencia Commerce and Industrial Center parks. Operations in that building will serve as a clearinghouse for many of its clients who produce goods overseas.

The city of Palmdale manages the FTZ designation grant, which it received in 1993. Moving pieces of land designated for a FTZ around requires a minor boundary adjustment, Blackburn said.

But the simple land switch provides bountiful benefits for AMS clients.

FTZ benefits

A business can reduce taxes and duties in an FTZ, Bevacqua said.

Located near ports of entry, such as the ports of Los Angeles and Long Beach, FTZs are secure areas under U.S. Customs. They are the U. S. version of what is known as internationally free-trade zones, according to Customs.

Foreign and domestic merchandise may be moved into the zones for operations. While there, the merchandise is not subject to duty fees or federal excise taxes until it leaves the designated FTZ for U.S. consumption.

Deferring duties and taxes allows companies to save money while the goods are in storage, awaiting distribution to the customers at a later date.

Without the FTZ, companies would have to pay duties once the goods arrived at a U.S. port, Klepfer said.

As for clearing U.S. Customs, AMS Fulfillment will manage that for its clients by filing the paperwork for any inventory brought into the FTZ and before it leaves for distribution elsewhere, Bevacqua said.

"We don't clear it from Customs at the port of entry," he said. "Shortly before the products need to move out, we file the paperwork with U.S. Customs so it can be moved out of the FTZ."

There are also "light manufacturing" benefits.

"Sometimes, we bring products in that need to be relabeled, or alter the packaging," Klepfer said. "That qualifies as light manufacturing and can also affect duty of product."

A big savings for AMS clients comes into play with required merchandise processing fees.

"Everyone has to pay merchandising process fee assessed on value of the product at the time you bring it into the country. In a FTZ, the fee is deferred and then you only pay a maximum cap of $485," Bevacqua said. "It's a significant savings."

The process to becoming FTZ certified, however, is almost as big as the savings created for clients.


"You have to apply with the government to become designated as a foreign trade zone operator," Bevacqua said.

AMS needed to submit blueprints, architectural information and comply with security requirements on the building it selected for FTZ status, Klepfer said. It's a very stringent process that can take up to two years.

"We have to upgrade security to meet requirements of U.S. Customs and Border Protection," Klepfer said. "And we've had background audits by the U.S. Immigration and Customs Enforcement and the FBI."

It becomes a federal offense if any inventory is moved from FTZ facility if the products aren't recorded and filed with U.S. Customs before they enter into commerce markets.

The FTZ board has to come out and audit facilities to make sure you're in compliance securitywise before your status is activated, Bevacqua said.

"We started the process over a year ago," Klepfer said. "We're very close to certification. We expect to complete the process within the next six months."





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