Many companies are failing to take advantage of the savings to be derived from foreign trade zones because they worry about the complications involved in using them.

Like any government program, FTZ management brings with it no shortage of paperwork and regulations. Today, however, companies are finding innovative ways to streamline the setup and management process by deploying innovative software applications.

FTZs are areas within the U.S. that are considered outside the country by Customs and Border Protection (CBP) for duty purposes. This brings with it a host of benefits, including:

• Duty deferral. Companies don’t pay duties on imported goods until they leave the zone and enter the U.S. market. This helps improve cash flow and allows for tax-free storage of inventory.
• Duty reduction. Instead of paying duties on individual imported parts, companies pay them on finished items entering the U.S. market. Not only does this reduce the number of items which incur duties, but often the finished product will have a lower duty rate than its individual parts.
• Duty elimination. In some cases, finished products are entirely duty-free. For instance, with a vacuum, instead of paying 4.3% on the motor and wheels, plus 3.4% on the lithium-ion battery, companies could pay zero duties on the finished product.
• Merchandise processing fee bundling. All goods imported into the U.S. incur an MPF, which is currently rated at 0.3464% of the cargo’s value. The minimum is $27.75, and MPFs can be bundled into weekly fees at a maximum rate of $538.40. For companies with high-value or high-volume shipments, this can result in massive savings. 

The process of filing for existing facilities to be declared FTZs can be daunting for those attempting it manually and without expert guidance. Setting up an FTZ requires submission of complex application paperwork to the U.S. Department of Commerce’s International Trade Administration, paying a $3,200 fee, and even publishing a notice in a local newspaper. And prior to all of this, companies need to determine if the benefits cover the cost for their unique situation.

In response, companies are turning to experienced FTZ providers who can perform cost/benefit analyses, submit paperwork and manage the entire application procedure.

Ongoing management of FTZs requires meticulous recordkeeping. Operators must keep records of all items currently in the zone, as well as all items transferring from it. These records must specify by zone lot number or unique identifier the following:

• Location of merchandise;
• Zone status;
• Cost or value of merchandise;
• Beginning balance, cumulative receipts and removals, adjustments and current balance on hand by date and quantity;
• Destruction of merchandise, and
• Scrap, waste, and by-products.

For tracking inventory leaving a zone, the paperwork trail must be able to demonstrate that products entered it zone in compliance with CBP authorized inventory methods. Failure to do so can jeopardize FTZ status and lead to regulatory action.

In addition, FTZ operators are required to prepare annual reconciliation reports. They contain information regarding all merchandise on hand at the beginning of the year, transfers made throughout the year, inventory on hand at year-end, and more — and they need to be available at all times for spot checks and audits. 

Without the right software tools, the management needs of an FTZ can increase administrative hours and cut into margins. Following are some features to look for in FTZ management software:

Integration with CBP’s Automated Commercial Environment (ACE) system. ACE is the means by which the trade community enters import and export data as well as interacts with CBP personnel. When looking for FTZ management software, it’s imperative to make sure that the application’s inventory control and recordkeeping system (ICRS) integrates with ACE. Otherwise, FTZ operators will be duplicating work and spending excess time on reporting. The software allows operators to extend the power of ACE with automated country code updates; Harmonized Tariff Schedule updates; Lacey Act APHIS declarations for wildlife, fish and plants, and much more.

Proactive notifications. FTZ software can send notifications and alerts regarding upcoming reports and CBP deadlines. The most innovative applications allow for user customization to send e-mails, texts and reports to the appropriate personnel.

Advanced built-in reporting. Having visibility over operations shouldn’t mean scrolling through endless spreadsheets. With built-in reporting features, FTZ software allows operators to quickly visualize the flow of inventory. The built-in reporting feature also helps operators to ensure audit readiness at any time, by storing documents and backing up all data. 

For nearly a century, FTZs have been a readily available way for U.S. companies to obtain big savings and enhance supply chain operations, even if at times the path looked daunting. Today, companies can travel that path easier than ever, by partnering with FTZ software providers and experts to realize competitive advantage.

Brent Dawkins is product marketing director at QAD.