Although some shippers are hesitant on using foreign trade zones (FTZs) due to compliance burdens, the benefits of FTZs may be worth the effort.
FTZ sites offer duty management benefits, but have to be diligently managed.
Source: WikiMedia | cjp24
The high-level justification for the use of foreign trade zones (FTZs) should be fairly clear for any major shipper that’s taken the time to understand the efficiencies gained by using this kind of duty management tool. Companies can defer or avoid paying duties on goods imported through FTZs and save significantly by filing entries weekly instead of on a shipment-by-shipment basis.
But concern over management of such programs has typically prevented companies from using FTZs more or, in some cases, at all. FTZs, like any tool designed to help shippers save or delay duty payment, requires diligence on the part of the company.
That hesitation some shippers feel is only exacerbated by the way the implementation of U.S. Customs and Border Protection’s Automated Commercial Environment (ACE) might affect their management of FTZs. Put more simply, running an FTZ program seems hard enough, and doing it while meeting the requirements of ACE seems that much more daunting.
Complying with ACE is the price to pay, so to speak, of leveraging the advantages of an FTZ these days. But that doesn’t mean those compliance burdens are impossible, or not worth the effort.
ACE does, however, introduce some new wrinkles that users of FTZs (and those considering the use of an FTZ) must be mindful of.
For one, there’s the partner government agency (PGA) data submission requirement, which is a huge part of the ACE puzzle. PGAs are agencies needing specific data from shippers that is to be collected through ACE. In an FTZ environment, that data can be voluminous, to say the least.
“At the moment the PGA data is being split between the [customs release form] 3461 and the [customs entry form] 7501 depending on the agency,” Liz Connell, vice president of product management at the global trade management software provider Integration Point, told American Shipper in a recent interview.
“This means there are complications by agency on where data needs to be tracked and reported. For many zones, their weekly 06 FTZ entry (the weekly summary entry allowed under the FTZ) can span multiple agencies, so finding an automated way to report the PGA data is really critical,” she said. “Also, since zone entries can span a seven-day period, the amount of PGA data that needs to be reported each week can be very large. So finding automated ways to audit the PGA data is very important.”
Connell cited how, for instance, this might affect a carmaker using an FTZ.
“A good example would be how [National Highway Traffic Safety Administration] data on an entry summary could cover seven days’ worth of cars manufactured in an FTZ,” she said. “This can be upwards of 20,000 cars that have to reported on a single entry summary.”
In a broader sense, Connell noted that automation is becoming a higher priority in the management of zones.
Companies are “always looking for new ways to automate and manage their zones by exception,” she said. “With the addition of ACE requirements for zones, more and more data needs to be managed, and zones are looking for better ways to manage the data and process it in an automated way.”
Aside from the drive to automate the management of FTZs, Connell also pointed to another trend: integrating other compliance documentation and supply chain partners into the zone.
FTZ users are “looking to integrate more of their global trade management processing with their zone,” she said. “A zones program offers a unique perspective of having all of the key attributes to a supply chain in one location – classification, import and export information, as well as inventory management. We are seeing more and more zones taking advantage of this by building onto the data they already have in their zones to create robust import, export, and classification programs.”
But even more interesting may be a push to see FTZs as a strategic means to better manage supply chains. And part of that is housing strategic partners within the FTZ itself.
“We are seeing a shift in companies moving strategic partners in their supply chain into FTZs to help maximize savings,” Connell said. “In the past, we had seen many companies turn their own distribution centers into FTZs. Now they are looking at their supply chain partners and encouraging them to join the zones program, too.”
That includes “negotiating deals on pricing and contracts based on the use of a zones program and transferring between the zones on a 7512 (CBP’s form covering in-bond transit of goods),” according to Connell. “This allows the shipping zone to avoid paying the duties, taxes and fees – thus able to sell the goods at a lower price – while the receiving zone can take advantage of inverted duty savings by further manufacturing the product into finished goods.”
She said the concept of bringing key supply chain partners into an FTZ is becoming particularly common in sectors with highly specific characteristics.
“We are seeing it a lot in automotive/transportation, as well as the heavy machinery sectors,” she said. “Any industry where the parts have higher duty rates than the finished goods would be a great candidate for considering integrating supply chain partners into an FTZ.”
Back to the issue of submitting PGA data via an FTZ, Connell’s colleague, Virginia Thompson, also a vice president of product management at Integration Point, added that a critical area for her customers to manage is determining whether a particular data element is “maintenance” related or “transactional.”
“If the data element is something that is going to be used and re-used and doesn’t change from shipment to shipment, there are efficiencies and increased compliance to be gained from holding that information in a classification database system,” Thompson said.
“But some data elements may change from shipment to shipment (like the vehicle identification numbers associated with the carmaker needing to meet the NHTSA requirement), so one also needs some sort of transactionally-based system like FTZ software to manage holding those data elements per shipment,” she added. “Ideally, you want those two systems – the classification database and transactional FTZ processing – to be on the same software platform, so that you can utilize both sources to end up creating your filing data for CBP and the PGAs.”
The maintenance-or-transactional issue is not unique to FTZs.
“This concept of maintenance, as opposed to transactional, needs to be managed for all ACE filings, but it gets more complicated with FTZ entries, due to the different types of transactions (3461, 7501 and even admissions) that cover the ACE filings in and out of a zone,” Thompson said.
That determination of whether a data element is maintenance or transactional has become more complex with ACE and PGA requirements. It’s emblematic of how FTZ management can seem onerous from the outside looking in, but also of how tools are available to manage that complexity, while also providing duty benefits and broader strategic supply chain advantages.
“It seems like (FTZs) were very much front and center for a while, and probably in part because of the distractions of ACE recently, I don’t hear people talking as much about the opportunities that they have to offer,” Thompson said. “From our perspective, though, we definitely see some interesting trends in the ways people are taking advantage of the FTZ program.”
Eric Johnson is Research Director and IT Editor of American Shipper. He can be reached by email at [email protected].