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Foreign Trade Zone can benefit businesses

Experts describe the program as a great cash management tool for importers and exporters

Posted: March 3, 2013 2:00 a.m.
Updated: March 3, 2013 2:00 a.m.

Kari Blackburn, Sr. Economic Development Project Manager City of Palmdale, speaks about the benefits of Foreign Trade Zone status at a town hall meeting held at AMS Fulfillment in Valencia on Thursday.

 

Exporters and importers, as well as the warehouse and distribution companies that support them, reap multiple benefits when they operate inside a Foreign Trade Zone – or FTZ, said experts at a recent meeting.

Hosting an intimate town hall meeting for companies located within the Valencia Commerce Center, AMS Fulfillment invited local business owners to its headquarters to explain the mechanics of operating within the zone and the economic advantages they would gain.

On Aug. 8, 2012, after years of working to secure the status, AMS Fulfillment was designated as Foreign Trade Zone, essentially allowing the warehouse order fulfillment and shipping distribution center to act as a port, clearing its client’s merchandise through U.S. Customs and Border Protection.

There has been significant growth in the use of Foreign Trade Zones in the past 10 to 20 years in Southern California, said David Harlow, president of ITC Diligence, a consultant on the zones.

Companies can avoid or delay paying duty and excise taxes, Harbor Maintenance and Weekly Entry program fees by moving merchandise through an FTZ, Harlow said.

“It’s a great cash management tool,” said Joe Mladinov, FTZ administrator for Spectrum Brand HHI.

Mladinov’s company, which owns and distributes scores of products including Stanley tools, uses the FTZ save millions of dollars in duty deferred fees, he said.

The Weekly Entry program requires importers to pay a $485 fee on every single shipment entering a U.S. Port. Under a FTZ, a company can pay that fee just once a week – and lump all shipments received that week under just one fee payment, Harlow said.

“If a company received 25 shipments per week through a port, that $485 fee would add up to $12,125 per week,” he said. “Paying the fee only once per week can save a company $605,280 per year.”

When a company brings products into a U.S. Port, it also has to pay duty fees once the goods arrive. Importing through a FTZ, the business does not have to pay any duty until the products are sold and shipped out, Mladinov said.

In fact, foreign and domestic merchandise is not subject to duty fees or federal excise taxes until it leaves the designated FTZ for U.S. consumption, said John Bevacqua, a supply chain consultant for AMS.

Also, a company only has to pay duty fees on a quarterly basis, and is given another 30 days to make its payment, allowing the company to hold on to its cash for nearly four months, Mladinov said.

When goods come into a FTZ, no bond is required, the experts said. And a company can mingle – or stock duty-required and non-duty required products side by side, said Ken Wiseman, CEO and managing partner for AMS Fulfillment.

And there is another benefit when their products are imported directly into a FTZ, before being re-distributed out of the country, because the company realizes immediate savings and no longer needs to file for a “drawback,” Harlow said.

While a company can apply for a refund when its goods come through a U.S Port, it’s a very complicated, time-consuming process, Wiseman said.

“Your product is your money,” Mladinov said. “We set agreements with the trucking companies so that we get direct delivery. They don’t have to sit at a port for days on end before being moved.”

While AMS Fulfillment has benefited, as have its clients, by being designated as a Foreign Trade Zone, the company has since applied to expand the status to all companies within the Valencia Trade Zone.

As a result, the company is holding a series of meetings with companies operating out of the area to educate them on the benefits of taking advantage of the FTZ status.

In a cost benefit analysis, importers or exporters can realize a savings of at least $50,000 or more from becoming approved to act as U.S. Customs, Harlow said.

If a company doesn’t feel there is a benefit to activating the FTZ for their company today, it may just as easily benefit by moving their imports and exports through AMS Fulfillment, said Kari Blackburn, senior economic development project manager with the city of Palmdale, which carved land out of its FTZ for companies in the Santa Clarita Valley to use.

AMS Fulfillment recently applied for an “alternative site framework” expansion to make the benefits available to all companies operating in the Valencia Commerce Center.

“We’re pretty confident the alternative site framework will be approved,” said John Bevacqua, supply chain consultant for AMS. “It’s just a matter of time and we expect it will be approved this year.”

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