Foreign Trade Zones (FTZs) confer clear financial benefits to manufacturers and retailers. Using an FTZ can expedite product flow to market or enable strategic product releases motivated by demand rather than dictated by overseas shipment timing or the need to recoup tariff costs. In addition, FTZs can provide a methodology for overcoming quota restrictions.
If your firm has taken all the obvious steps—outsourced production to the lowest-cost overseas manufacturer, analyzed the supply chain and identified the most cost-effective carriers and transport methods, and maximized automation across operations—consider an FTZ as your next best strategic option to be more competitive in today’s challenging economy.
Fully automated and integrated, QuestaWeb’s FTZQW global trade management software solution offers robust, rule-based functionality combined with rich content, reporting and integration tools and multiple electronic links to government agencies. The software assures precise control over CBP-supervised inventory, including compliant movements; FTZ manufacturing; and overall adherence to CBP’s rules and regulations. Most important, QuestaWeb’s FTZQW global trade management software involves no transaction fees.
View Case Study 1
MD Logistics Manages Its Multi-User Foreign Trade Zone with QuestaWeb’s FTZQW
MD Logistics is a global provider of high-quality third-party logistics (3PL) services. Its primary vertical markets include life sciences and pharmaceuticals, retail and consumer goods, and transportation services. The firm is headquartered in Plainfield, Ind., 9 miles west of the Indianapolis International Airport. It also maintains distribution facilities in Reno, Nev.
MD Logistics sought to offer customers a new business line: foreign trade zone (FTZ) management services. Its vision was to convert multi-use warehouse space into separate FTZs and service multiple customers within the facility. The firm activated close to 400,000 square feet of FTZ space in 2011, with plans to activate an additional 200,000 square feet for pharmaceuticals and cold chain storage by the end of 2012.
MD Logistics needed FTZ software that could concurrently manage multiple customer accounts and maintain complete data segregation. The FTZ solution also had to accommodate complex integration requirements, seamlessly integrating with MD Logistics’ warehouse management system (WMS) and each customer’s ERP system. It had to offer ABI connectivity, electronically communicating with U.S. Customs and Border Protection (CBP). Last, the FTZ system had to be AES approved, allowing automatic generation and transmission of required documents to CBP.
“Most of all,” said John Sell, MD Logistics’ Vice President of Retail and Transportation Solutions, “My No. 1 requirement was compliance. The vendor’s system had to assure strict compliance and possess a reputation for accuracy and integrity. I enlisted three well-known vendors to do product demonstrations. In the end, QuestaWeb met all our requirements and was cost effective, too.”
MD Logistics opted to deploy QuestaWeb’s FTZQW in QuestaWeb’s cloud. It offers precise control of CBP-supervised inventory and proactive management of compliant inventory movements. The solution offers robust functionality combined with rich content, rule-based integration tools and electronic links to multiple regulatory government agencies. Its ABI connectivity allows electronic filing of import entries, electronic in-bonds, Permits to Transfer and more. Whether managing multiple clients in one FTZ or one importer maintaining several foreign trade sub-zones in different ports, QuestaWeb’s FTZQW offers a high degree of automation and has the capability to process large volumes of transactions with instant compliance verification and management by exception.
Sell, in commenting on the decision to select QuestaWeb, said, “Most FTZ software contemplates that the licensee will be the only user. QuestaWeb separates itself from other vendors by offering a solution containing the logic to service multiple customers concurrently or one customer with multiple sites. Its software is flexible and easy to integrate, accommodates high transaction volumes, maximizes automation and is affordable.”
The solution went live in February 2011. While the integration requirements were complex, QuestaWeb’s staff, working with MD Logistics, handled them all.
From MD Logistics’ perspective, it can offer customers FTZ management services that are automated to the fullest extent possible, draw from the latest data contained in the ERP/WMS solutions and assure compliance with CBP requirements because regulatory updates occur in real time. As a service provider, this peace of mind is vital to MD Logistics, as the firm expects to expand its customer base by three additional firms by year’s end.
MD Logistics’ FTZ customers benefited in five major ways:
Result 1: Minimized logistics costs, duties, fees and taxes
Product can move into the FTZ and remain under foreign goods status. Thus, duty payments can be deferred until the goods are actually consumed. So, the carrying cost of inventory goes way down.
Rather than doing a customs entry on every incoming shipment, FTZ status allows a firm to file a comprehensive entry once per week. In so doing, firms can minimize the amount of fees paid both from a customs brokerage and a merchandise processing fee (MPF) standpoint. In effect, it allows MPFs to be capped.
The fact that duty payments can be deferred eliminates the need for a duty drawback program. Since goods retain their foreign status, re-exporting them from the FTZ incurs no duty. This provision is helpful when, for example, a firm encounters a quality control issue with an incoming product. Because the issue is recognized while the product is in foreign good status, it can be re-exported for correction without paying duty on the product on its outward and inbound shipment.
Result 2: Assured compliance and reduced exposure to fines/penalties
Many CBP requirements govern FTZ operation. Those unfamiliar with the regulations can easily misinterpret them and/or inadvertently fail to comply with one, setting up the firm for fines and penalties. Allowing MD Logistics to serve as manager enables an expert to comply with the needed actions. Further, MD Logistics’ decision to employ QuestaWeb’s FTZ solution enhances compliance because it contains all the requirements and the timing for each required action. The system automatically generates email alerts and escalates reminders if a needed action is not taken.
Result 3: Automatic generation of documentation as well as mandatory, analytical and management reports
There are scheduled events that have to occur when administering an FTZ. On a daily basis, reports must be filed detailing items received into the FTZ on the previous day. On a weekly basis, reports must be filed on products consumed. The QuestaWeb system automatically generates these reports using data from the ERP/WMS, assuring the most accurate information is employed. Moreover, the QuestaWeb system can identify inconsistent data and alert officials of any exceptions.
Result 4: Improved on-time delivery
Using an FTZ allows a company to bring goods to market faster. The company does not require a Customs release to ship goods from the FTZ; those entries are made weekly and cover goods shipped the previous week. Thus, foreign goods could conceivably move into the FTZ, go to market and be purchased off the shelf before a single Customs entry is made.
Result 5: Increased efficiency and visibility of supply chain information
The big win is the supply chain efficiency that an FTZ delivers. When dealing with cold supply chain products, for example, it is important to mitigate their exposure to non-optimal temperatures. If a large consignment is sitting on the tarmac of an airport pending Customs release, the risk of product spoilage is real. If a firm has an FTZ, goods can move right away under optimal conditions, thereby maintaining their quality and integrity.
Felix Pekar, COO of QuestaWeb, says, “Operating an FTZ is a complex process, requiring much more than accepting, warehousing and shipping product. Many would have you believe that generating the E214 is the most challenging requirement involved. As MD Logistics can attest, being a 3PL and managing a multi-use FTZ compliantly involves much, much more. It is leading the 3PL industry by offering this new business model that confers significant savings, efficiencies and benefits to its customers. QuestaWeb is proud to be a partner in MD Logistics’ innovation, assisting our clients with one-of-a-kind software solutions that meet their unique needs.”
View Case Study 2
Yamaha Manages Two Foreign Trade Zones Compliantly with QuestaWeb’s FTZQW
Yamaha Corporation is the world’s largest manufacturer of musical instruments and a leading producer of audio/visual products. Yamaha Corporation of America (YCA), headquartered in Buena Park, Calif., is one of the largest wholly-owned subsidiaries of Yamaha Corporation, Japan.
Yamaha manufactures products overseas, imports them to the United States and then distributes them to markets in the United States, Canada (for Yamaha Commercial Audio) and elsewhere in the Americas. YCA is focused on compliant trade and strict regulatory adherence, and it relies on QuestaWeb’s TradeMasterQW global trade management software to achieve these goals.
The expense of importing and exporting product is an area where YCA seeks to keep its costs as low as possible. So, YCA is continually evaluating its operations to identify opportunities for cost savings.
YCA recognized that, for example, when it imported goods destined for Canada, it would pay U.S. duty upon arrival in the United States and then pay Canadian duty when shipped across the border. This practice was not cost effective. Moreover, there were broker fees associated with each product movement.
Beyond duty, YCA also was subject to user fees on imported goods, notably a Merchandise Processing Fee (MPF) on formal entries. A pending MPF increase threatened to increase YCA’s import costs further.
Eager to contain costs, YCA opted to leverage the benefits of a foreign trade zone (FTZ). YCA sought to establish two FTZs, one near Los Angeles and the other in the Chicago area, but needed an FTZ solution that could integrate easily with its ERP, GTM and third-party WMS. Moreover, the software needed to handle input from two FTZs concurrently but maintain complete data separation and integrity.
YCA explored the available vendor options and licensed QuestaWeb’s FTZQW module. Implementation was completed in less than 6 months’ time.
QuestaWeb’s FTZQW proactively manages the entire FTZ process. The solution is ABI approved, allowing electronic filing of entries, weekly estimates and in-bonds directly to CBP; it also is AES approved, with direct electronic filing of CF 214s. The system automatically generates other documents, such as CF 216s. Much of the module’s advanced functionality derives from its comprehensive product database.
Juna Kim, Import/Export Director, YCA, said, “Beyond our familiarity with QuestaWeb and its GTM products, three things drove our decision making: the module’s robust functionality and rich content; its rule-based integration tools; and its electronic links to multiple regulatory government agencies.”
Kim continued, “FTZ operations require precise inventory control and compliant inventory movements. With the QuestaWeb solution, when product enters the FTZ it interfaces with the ERP system and third-party WMS; inventory reconciliations occur nightly. We felt we had tight inventory control processes before the FTZ, but with the FTZ they’re even better. We can be sure that we pay all the legally required duty but not a penny more.”
YCA is managing operations and global supply chain costs better and is saving considerably on its import/export costs. At this writing, four YCA divisions (Keyboard, Band & Orchestral, Pro Audio & Combo and Audio Video Divisions) are using the two FTZs.
Unlike many solutions, QuestaWeb’s FTZQW allowed YCA to automate its existing business processes rather than use unfamiliar ones programmed into the solution. YCA staff quickly adapted to the software, with few learning curve delays. System integration was straightforward, a hallmark of QuestaWeb solutions.
As expected, YCA is leveraging the many benefits an FTZ confers including
- Duty Deferral: YCA only pays duties when products enter CBP territory.
- Duty Avoidance: YCA does not pay duty on goods exported from its FTZs, transferred between FTZs or destroyed.
- Time to Market: Items aren’t held for customs clearance, speeding up the supply chain by at least 3 days.
- Tax Benefits: While goods are within the FTZ they generally are not subject to state and local inventory taxes.
In addition, YCA is reviewing and modifying its ERP system to eliminate its Duty Drawback program eventually.
Using FTZs as distribution facilities has lowered YCA’s duty payments dramatically. In addition, per the provisions of the Trade Development Act of 2000, YCA only must prepare one weekly entry rather than filing individual entries as it was required to do previously. This provision translates to cost savings as well.
Collectively, these benefits translate to improved corporate cash flow. Moreover, YCA achieved complete ROI on its system costs within year 1. Most important, YCA is fully compliant with all FTZ regulations and enjoys reduced exposure to fines and penalties.
According to Wayne Slossberg, Vice President of QuestaWeb, “One of the often overlooked features that QuestaWeb’s FTZQW solution offers is its unique ability to generate mandatory reports as well as analytical and management information tailored to whatever format the customer desires. This output gives managers actionable information, as well as increased visibility across the supply chain, that facilitates decision making. If any atypical information needs arise, the system can execute customized queries as well.”
Kim agrees, stating, “YCA has a complete grasp of its global trade situation through the customized system it’s designed using QuestaWeb solutions. The QuestaWeb staff knows global trade and was able to understand our business processes and automate them. We’re moving product to market compliantly, quickly, efficiently and cost effectively. In the final analysis, that’s the ultimate objective any firm involved in global trade hopes to achieve.”
Kim adds, “None of this could have been accomplished without the consolidated effort of the Yamaha FTZ Project Team, consisting of QuestaWeb, YCA’s consultants and its third-party warehouse provider.”