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Meet Our 2019 Supply Chain Pro to Know: Eric Dalby

We are extremely proud to celebrate Eric Dalby’s recent recognition as a 2019 Provider to Know by Supply & Demand Chain Executive magazine. Because of this recognition, we wanted to put Eric in the spotlight and give our customers the opportunity to get to know him.

With nearly 20 years of experience in the global trade arena, with special emphasis on technology and compliance, it is obvious that Eric understands the challenges importers, exporters, brokers and forwarders face daily in navigating the regulatory environment. With previous experience as a licensed Customs broker and certified Customs specialist working for major apparel firms, Eric acquired an in-depth understanding of both Customs’ requirements and the internal processes needed to satisfy them. Leveraging his knowledge, Eric helped lead efforts to automate global trade and transition to the Automated Commercial Environment (ACE).

Here at QuestaWeb, Eric applies his considerable knowledge to our Foreign Trade Zone practice as our Director of Foreign Trade Zone and Global Trade Management Implementations. He assists major corporations in leveraging the economic benefits FTZs confer by designing automated compliance solutions with our advanced, web-native technology. Additionally, Eric is an Accredited Zone Specialist, a designation that is based on meeting the criteria of employment in the FTZ field, involvement at NAFTZ seminars and conferences, and active participation both in the NAFTZ community and FTZ field.

In addition to his extensive knowledge of FTZ and GTM, Eric is a gifted speaker and writer, having served as a panel moderator, webinar leader, panelist, presenter and blog contributor on numerous occasions. He holds a B.S. in financial management and an M.B.A. from Clemson University.

What do you believe are the key challenges Questaweb’s customers and their supply chains will face in 2019?

Eric – In 2019, the key challenge our customers and their supply chains will face is uncertainty. Supply chains have many inflection points where any unplanned event can have cascading effects: natural disasters, labor disputes, regulatory surprises and variability in resource prices (e.g. an increase in the cost of aluminum imports) can change the price of a landed good overnight. When the price of materials used in the production of other goods goes up, like steel and aluminum because of recent tariffs, it affects the landed cost of goods in a major way. Not only that, but every product that uses those materials sees an associated price increase. When clients don’t predict and compensate for cost spikes, they have two choices: absorb the difference, or pass those price increases onto their consumers – neither of which is very appealing.

How is Questaweb working with its customers to meet these challenges?

Eric – Import and compliance teams are now being asked by executives to help with decisions based on sourcing, cost and risk analysis. However, these teams don’t have the necessary tools to provide these answers. For instance, the U.S. subsidiary of a $6 billion multinational electronics and electrical equipment company imported products from its Japanese headquarters using manual processes. Beyond the inefficiencies of using paper documentation and having brokers manually key data, the post-import reconciliation of broker documents for correctness and compliance was labor intensive. QuestaWeb’s Global Trade Management tool has allowed this client to project logistics costs, duties, fees and taxes, while ensuring adherence to compliance regulations and reducing exposure to fines and penalties.

How can a supply chain better align with a company’s broader strategy?

Eric – All companies are in business to make money. When a company experiences a 25 percent increase in its cost, it has entirely lost its margins. For this reason, it is important for a company to make decisions early on in the supply chain. Early and effective supply chain management enables companies to track the movement of the raw materials needed to create products, optimize inventory levels to reduce costs and synchronize supply with customer demand. Furthermore, supply chain management enables companies to maintain visibility over their logistics to ensure availability of materials and delivery of products to customers.

We hope you enjoyed getting to know our Pro to Know. If you would like to request more information, you may do so here: http://questaweb.com/contact-us/

Eric Dalby Earns Accredited Zone Specialist Designation

We would like to congratulate Eric Dalby on his recent Accredited Zone Specialist (AZS) designation!

The reputable program was created to elevate professional standards and distinguish Foreign Trade Zone (FTZ) professionals who have demonstrated knowledge of the FTZ program and can easily adapt to change in today’s challenging environment. The designation is based on meeting the criteria of employment in the FTZ field, involvement at NAFTZ seminars and conferences, and active participation both in the NAFTZ community and FTZ field. Currently fewer than 75 individuals hold this certification.

Accredited by the National Association of Foreign-Trade Zones (NAFTZ), the program was created with the intention to help individuals connect with the association and its resources. The NAFTZ has been implementing professional development programs, like its AZS designation, for the last 40 years in support of its mission to serve as the FTZ program’s principal educator.

With nearly 20 years’ experience in the global trade arena, with special emphasis on technology and compliance, Dalby understands well the challenges importers, exporters, brokers and forwarders face daily in navigating the regulatory environment. As a licensed Customs broker and certified Customs specialist working for major apparel firms, Dalby acquired an in-depth understanding of both Customs’ requirements and the internal processes needed to satisfy them. In that regard, he helped lead efforts to automate global trade and transition to the Automated Commercial Environment (ACE).

As the current Director of FTZ Implementations at QuestaWeb, he is applying his considerable knowledge to our Foreign Trade Zone practice. He assists major corporations in leveraging the economic benefits FTZs confer by designing automated compliance solutions with QuestaWeb’s advanced, web-native technology.

A gifted speaker and writer, Eric has served as a panel moderator, webinar leader, panelist, presenter and blog contributor on numerous occasions. He holds a B.S. in financial management and an M.B.A. from Clemson University.

Congratulations, Eric!

Eric Dalby to Moderate Panel at 46th Annual NAFTZ Conference and Expo

NAFTZ’s 46th Annual Conference and Exposition will be held in Atlanta, Georgia, Sept. 16-19, 2018. This year’s theme, “FTZs: A public private partnership for the U.S. Economy,” will reflect on the expanding opportunities of the FTZ program as well as the ever-changing landscape of being on the cusp of an impactful year.

With trade policy currently a hot political topic, the U.S. Foreign Trade Zones program plays an even more important role in promoting trade, investment and job creation. As more and more U.S.-based companies import and export, the FTZ program has become a critical tool for companies competing in the global economy. The FTZ program also empowers local communities across the United States to attract foreign and domestic investment, and to retain manufacturing activity and jobs on U.S. soil.

This year’s conference program offers both a broad perspective on the role of the FTZ program in promoting economic development and competitiveness, as well as the practical knowledge that grantees and operator/users need to benefit fully from the program. Along with general sessions on “FTZs: In the News: Trade Cases, Current  Affairs  &  Foreign  Investment,” the conference will offer specialized tracks for Grantees and Operator/Users, as well as an Advanced and Fundamentals  track for those with various expertise in the FTZ program.

Our Director of FTZ and GTM Implementations, Eric Dalby, will be moderating the session titled, “Managing & Validating Partner Government Agency (PGA) Data.” Slated for Tuesday, Sept. 18 at 9:35 a.m. ET, the session will dive into real world scenarios and solutions of how to best manage the information that is required to file with partner government agencies. Christopher Smith from IKEA and Karen Aulbach from BMW will join Eric on stage.

This 4-day event is one you will not want to miss. In addition to attending Eric’s session, stop by QuestaWeb’s booth to gain a lifetime of resources, relationships and industry updates. For more information, contact us.

Details

Managing & Validating Partner Government Agency (PGA) Data

Tuesday, Sept. 18 at 9:35 a.m.

Speakers

  • Christopher Smith, IKEA
  • Karen Aulbach, BMW

Moderator

  • Eric Dalby, QuestaWeb, Inc.

Meet Our Supply Chain Pro to Know: Chris Springer

We’re extremely proud to celebrate Chris Springer’s recent recognition as a 2018 Pro to Know by Supply & Demand Chain Executive magazine. We thought it was only fitting to put Chris in the spotlight and let our customers truly get to know him.

With over 20 years of supply chain experience, primarily focusing on global trade compliance, it is safe to say Chris understands how to address complex issues such as how best to automate business processes and how to make existing supply chain processes more efficient. Chris daily applies his triad of experience – regulatory knowledge, programming ability and integration expertise – to elevate the advice he gives to QuestaWeb customers. He takes pride in not only delivering the best solutions possible but also in assuring that the ultimate users can extract maximum value from them.

Chris also is very involved in the compliance community, offering his insights, most recently on the ACE implementation effort. He works with ABI reps, U.S. Customs and Border Protection (CBP) officials, attorneys and individuals at the various ports, as well as clients, to assure that QuestaWeb software is as efficient and as transparent as possible.

So, Chris, what is the best part about working for QuestaWeb?

The best part about working for QuestaWeb is the flexibility that it offers in allowing me to try different things. I’ve done a lot of traveling and talked to people in all different walks of life. I have the unique ability to work with and understand challenges of Fortune 500 companies all the way to individuals who are starting a customs brokerage.

If there is one thing I have learned, it is that at the end of the day, all of these companies are a culmination of people and ideas. I am inspired by the different approaches each company takes to overcome challenges with technology and am truly humbled to help support their initiatives.

In late 2017/early 2018, some of the final transactions transitioned to ACE (those related to foreign trade zones and revenue collection), leaving just revenue collection and a few others to complete the implementation effort. How do you see this affecting the trade community and their supply chains?

In 2018, the trade community will have to accept the normalization of the new electronic environment. In addition, there will be related programmatic and operational changes affecting both the import and export worlds. There will be a period of tweaking the system to extract even more capabilities out of the ACE system.

In particular, one focus will be identifying ways to share data, especially among the numerous federal agencies involved. Another will be the issue of being more transparent across the supply chain as a whole, offering as much information in as simple a package as possible. Then, of course, there will be the task of overhauling the regulatory environment.

A likely outcome may well involve the development of key regulatory changes responsive to the needs of larger companies. Relative to revenue collection, for example, larger importers that are already concerned about their cash flow may well look for ways to hold onto their money longer through regulatory relief. There may be a move to more simplified reporting and filing summaries on a monthly basis, rather than a weekly one, which could have a ripple effect across the supply chain.

Effective March 23, 2018, President Trump issued Proclamations 9704 and 9705 on Adjusting Imports of Steel and Aluminum into the United States, providing for additional import duties for steel mill and aluminum articles. What does this mean and how do you see this affecting U.S. consumers?

Steel made in another country and shipped to the United States will be subject to a 25 percent tax. And imported aluminum will be hit with a 10 percent tax at the U.S. border. This decision has been made to incentivize U.S. companies to buy steel and aluminum from U.S. producers so the domestic metal industry gets stronger. However, many U.S. industry leaders agree that consumers will most likely face higher costs for cars and trucks, beer and soft drinks, canned goods and more steel/aluminum products because of these tariffs.

On top that, the United States Trade Representative (USTR) published a proposed list of Chinese goods targeted for assessment of an additional 25 percent duty upon importation into the United States. The USTR Notice explains that the proposed list was designed to minimize impact on U.S. consumers and largely excludes several types of consumer goods such as apparel, footwear and cell phones. Further, many of the items identified for the tariff are also exported to the U.S. from other countries, providing alternative sourcing options to importers.

How can a supply chain better align with a company’s broader strategy?

Being able to communicate accurate data across the supply chain is uppermost. From an importer’s perspective, it’s about assuring brokers and freight forwarders have correct information about their commodities so they can provide optimal information to governments, whether the United States or foreign governments. For exporters, it’s about getting denied party screening, licensing and other matters right the first time. Finally, it is about limiting overhead expenses as much as possible.

Automation, especially for QuestaWeb customers, gives companies the ability to manage their global trade with minimal resources. Our solutions make it possible to intervene only when exceptions arise, allowing staff to focus on those broader corporate strategies.

Let’s get to know you a little bit more. What do you like to do outside of work?

I have recently gotten myself involved in the sport of Curling. Participating in team and individual sports has taught me so much about working with others to accomplish goals. How to win or lose gracefully, build up my teammates and how to work others.

It may look like four adults yelling at each other but in reality we are communicating information about the stone or instructing what to do. From when the stone begins moving to when it comes to a rest, the movement and communication of a good team is constant.

It is like international trade in a way, though the point of moving goods is not to run into other goods and knock them out, getting to the destination as planned is a job well done. Every day that passes, technology we create brings us closer to the day that information about the current status of all goods are conveyed just as quickly as it is on the ice.

 

We hope you enjoyed getting to know our Pro to Know. If you would like to request more information, you may do so here: http://questaweb.com/contact-us/

Brokers and Forwarders: Here’s a Trend Worth Noting

by Wayne Slossberg

 

Currently, there are over 270 foreign trade zones (FTZs) in operation across the United States and its territories. And, the numbers are steadily climbing. Why? There are two primary answers. First, FTZs offer advantages when it comes to importing and exporting, especially

  • Deferred payment of duty and federal excise tax, with monies due only when goods leave the FTZ for consumption.
  • Exemption from state and local ad valorem taxes while products are within the FTZ.
  • Elimination of duty and excise tax on merchandise exported from the FTZ.
  • Ability to maintain goods within an FTZ indefinitely.
  • Freedom to select the most advantageous duty rate, that is, either the rate applicable when the goods entered the zone or the rate applicable on the finished goods leaving the FTZ.
  • Ability to place merchandise imported under bond within an FTZ to satisfy a legal requirement to export it.

Second, U.S. manufacturing is on an upswing thanks to the “Made in America” movement and the priorities of the Trump Administration. Companies want to take advantage of this new business environment, and FTZs present a viable means to decrease costs and be more competitive in both domestic and foreign markets.

The prospect of establishing an FTZ can be daunting for many importers. Often, they don’t have the bandwidth or an understanding of how to approach the process – or how to complete and submit an application to the Foreign Trade Zones Board. Clearly, the dynamics of the approval process aren’t necessarily difficult but can be somewhat challenging. And, of course, affordability is a concern for smaller importers that don’t want to take on the costs of acquiring a facility, staffing it and operating it.

This “dilemma” has created a business opening – and new revenue streams – for medium to large brokers and forwarders and even 3PLs. Many are looking for additional services to offer clients, and FTZ management and operation fit the bill. In many instances, offering these services and transitioning to a 3PL model solidifies brokers’ and forwarders’ overall business relationship with importers and adds an element of business security to their customer base. If a company is using their FTZ services, then they are less likely to lose that firm to a competitor.

Familiarity with the nature of the business – and the availability of technology developed specifically for FTZs – allows brokers and forwarders to enter the 3PL space and manage or run FTZ operations for one or more importers. And, the transition is a relatively straightforward leap regardless of whether the FTZ is created for manufacturing or distribution purposes. The key requirement is being compliant with the strict rules CBP has instituted to govern FTZ operations, especially the tracking of inventory movement and the filing of scheduled reports on time. That’s where FTZ technology integrated with brokerage and forwarding solutions comes into play.

For QuestaWeb customers, addition of the FTZ solution to their broker and freight forwarder solutions is easy. For brokers and forwarders with other solutions, QuestaWeb’s FTZ solution can be integrated with virtually any other technology. Notably, QuestaWeb approaches the licensing of its FTZ technology in two different ways. Knowing that some firms will want to handle FTZ operations for multiple clients, we offer a system with a block of transactions that the 3PL can divide in any manner desired. 3PLs also can acquire standalone FTZ technology, especially for those customers that want the 3PL to manage its FTZ for them and integrate the FTZ solution with their ERP system. QuestaWeb can handle that integration or the 3PL can, as desired. Whatever business model brokers and forwarders select, QuestaWeb can accommodate.

Adopting the role of a 3PL enables brokers and forwarders to play a more strategic role in the supply chain. No longer are they merely handling individual shipments. They become supply chain managers able to offer recommendations to optimize processes, save money and address issues before they become challenges.

In an industry where the numbers of brokers, forwarders and even 3PLs are shrinking due to a marketplace highlighted by closures, sales and consolidations, it’s important to be aware of emerging trends and add versatility to your service offerings and revenue stream. Operating, managing and even offering consultation services regarding FTZs is a noteworthy movement for brokers and forwarders.

It All Starts With Your FTZ

 

by Wayne Slossberg 

We’ve all done it. You start a small home project like hanging a new picture in your living room. Once it’s up on the wall, the piece looks beautiful but it makes the painted wall look dirty and faded. You paint the wall, but it emphasizes the carpet wear. You replace the carpet but now the sofa looks dingy in comparison. By the time you’ve finished, the simple act of hanging a picture has resulted in a completely redecorated living room. It wasn’t something you anticipated, but the end result is a more beautiful interior space that you can enjoy with friends and family.

So it is with many companies that opt to create a foreign trade zone (FTZ) to help lower tariffs, duties and taxes. They obtain approval, select an FTZ technology vendor and set up an FTZ. After a while, the savings start to mount and everyone is more than pleased. However, this realization makes company officials aware that the importing/exporting operations conducted via the FTZ are just one small part of the overall trade it conducts. How about the distribution centers located on the West Coast? Or what about the importing/exporting another corporate division conducts globally on a daily basis? Are we leaving savings on the table? Are there opportunities to strengthen trade compliance elsewhere? Are there ways to improve other business processes, just like the FTZ technology helped the company do?

The original FTZ footprint is about to yield a larger footprint, trade management compliance on a more expansive scale. Think about all the opportunities for greater efficiency and economy that automating importing/exporting processes and managing by exception can hold. Think, too, about what global visibility will mean to your supply chain.

This “snowball effect” is most definitely a positive thing unless, of course, you did not contemplate expanding compliance beyond a single FTZ when you obtained your technology. It could resemble the home decorating scenario described earlier if your company selected a vendor that only offers an FTZ solution. You’ll need to acquire the technology in a piecemeal fashion, likely through a variety of vendors and potentially facing costly integration issues. Worse, the final result might not be the beautiful new living room. It could be a variety of systems that never really “talk to one another” in the proper way. Interoperability can be a huge challenge.

In our experience, many companies do just that. They start with an FTZ and the benefits experienced cause them to expand their vision and contemplate the possibilities across all their importing and exporting activities. Or, taking a severe hit for noncompliance from U.S. Customs and Border Protection (CBP) elsewhere in the organization might be the catalyst to expand compliance concerns beyond the FTZ and move from spreadsheets to global trade management technology.

That is why at the beginning of the FTZ technology sales cycle, we counsel prospects to be mindful of trade compliance beyond the FTZ, even though the focus today is establishing a CBP-compliant FTZ. We recommend that they select a vendor that offers a suite of global trade compliance solutions that can build on the initial FTZ solution. We know it is entirely possible – and very likely – they will want to introduce automated trade compliance to all their importing/exporting activities eventually.

In the QuestaWeb world, if you have the compliance database that lies at the heart of our FTZ solution, then this “next world of compliance” is open to you. You posses the database with all your products, vendors and more that lays the groundwork for global trade compliance activity elsewhere in your firm.

The number one thing: No matter where you start – FTZ, import/export or self-filing – always look for a provider that can satisfy that next step in your global trade management vision. If you do, it will be easier and less expensive and the final result will be even better than you imagined.

ASSISTING THE ACE TRANSITION FOR FOREIGN TRADE ZONE OWNERS/OPERATORS

by Christopher Springer

The mission of the National Association of Foreign-Trade Zones (NAFTZ) is to help FTZ professionals stay connected, engaged and informed. So, it is not surprising that FTZ professionals are reaching out to NAFTZ regarding concerns over the scheduled migration of e214 core from ACS into ACE on September 16. In fact, they’ve asked NAFTZ to contact U.S. Customs and Border Protection (CBP) expressing concern about their ability to address and resolve these problems with no backup system available after September 16.

NAFTZ, motivated by a desire to frame a collective message from all of its software-provider members and broader membership, requested input regarding experiences with e214 testing.

Here is the essence of the response QuestaWeb sent:

QuestaWeb is a full suite ACE/ABI provider. For us, ACE Deployment G2 represents a turn into the home stretch of an endurance race that has lasted for more than a decade.

We have been testing the 214 and associated transactions in certification since CBP released the CBP and Trade Automated Interface Requirements (CATAIR) drafts. AMS, in-bonds and customs entries all directly associate with the 214 transaction, and all have been fully transitioned to ACE. We are fully committed – and prepared – to transition to ACE for e214 and ISF transactions on September 16, 2017. CBP also is fully committed to this transition and has established this date to assure that as many resources as possible are available to support the transition.

We have experienced an issue with filers who received CSMS #17-000536 on Tuesday, September 5, advising that testing is open to all trade participants. This announcement posed somewhat of a challenge, but the issue had more to do with the CBP certification setup than the transaction itself. Unlike entry filing, which requires a certification test, there is no requirement to test FTZ electronic transactions prior to going live. Consequently, most FTZ filers do not have a profile in the certification system, and the absence of a profile is resulting in a fatal error notice. On the CBP side, it is no small task getting a certification profile established. So, ABI reps have deferred to us, the software providers, to send their test transactions to certification.

Another challenge concerns the data in the certification database. Filers cannot send what they normally send to CBP’s production system to the certification system because the required information may not be reflected in the certification database. Bills of lading, zones and customs bonds may be missing from the certification system. CBP provides these particular data elements to mirror a production-like scenario. The same exact thing happened with customs entries, PGAs and all of the other transactions that have moved to ACE. Perhaps, only 5 percent of our filers sent test data for entries before transitioning to ACE.

Other than the FT (foreign trade zone) application ID and lack of record count in the Y record, the differences in the 214 transaction are negligible. Our approach to the transition allows the filer to choose whether the transaction will be sent in ACS or ACE format with a background configuration setting to default the transaction. Our code is 100 percent distributed to assure compliance for all of our filers as of this moment.

This challenge is just another issue in the move to ACE, and we must remember that the finish line is sight. We need to keep moving forward and maintain the momentum we’ve achieved to date.

 

FOREIGN TRADE ZONES 101: PART 3

by Trey Boring

In the last installment of this three-part series, Trey Boring, Senior Vice President of IMS Worldwide, Inc., responds to questions related to operating a compliant Foreign Trade Zone (FTZ). Boring is an expert in the field and his firm is an internationally recognized authority on the establishment, marketing and operation of Foreign Trade Zones.

Q: If you’re looking to just defer duty, what is the difference between an FTZ and a class 2 or 3 Customs-bonded warehouse?

A: I think the biggest difference is the restrictions that come along with class 2 and class 3 bonded warehouses. One must ask: Do those restrictions interfere with your commercial operation? Would it be difficult for you to live with those restrictions as a commercial operation? Straight up duty deferral can be accomplished with other programs, but it’s all based on what works easily with your internal commercial operations. And, with class 2 and class 3 you certainly don’t have the weekly entry option, which can certainly save some paperwork and processing.

Q: Is there a timeframe for recording the quantity of imported goods received in your FTZ?

A: There are a couple of answers to that question. The pertinent regulations discuss being able to report what goods you have upon receipt, but they don’t define a set timeframe. Many ports work under a 48-hour rule if you’re doing direct delivery. So, if a container arrives, is dropped at your door and you unload it, they’ll want a 214 within 48 hours.

The only true time limit applies to a general order (GO). So, if a shipment is shown as arrived at an FTZ facility, it closes the 7512, and the system shows that my firm is in possession of the merchandise. If I don’t cut a 214 within 15 days I run the risk of a GO request. So, that’s a hard-and-fast deadline. I generally tell my clients to prepare the report within 24-48 hours as a rule of thumb, as you want to be as fast as possible.

Q: Is there a time limit for how long you can keep items in an FTZ? Theoretically, could you leave them in the zone forever?

A: The answer is yes items can remain there forever. I worked with a zone that had a shipment that had been in its inventory for some 18 years. It was one of the first shipments to come into the zone.

Q: How accurate must the inventory be at any given point in time? With inventory moving all day long, an audit would not match 100 percent.

A: That problem would only come into play for you if Customs walked in and asked you to pull a 214. You pull the 214, and they might say, “You have item A on your 214. Tell me how many you have in the warehouse?” You might open up your warehouse management system, for example, and say, “I have a thousand, but I have a hundred of them in an active pick location. So, we should have a hundred there. If not, I can go into my system, show you what was picked and explain the difference.”

Again, it goes back to being knowledgeable regarding your inventory system and being able to prep Customs and explain it to them. At the end of the day, you will be able to prove with a report that the 214 minus what was shipped that day will yield the total of what’s in that zone.

Q: What is typically covered in the system review letter?

A: In the system review, what you’re looking for is: What did I do this year? What did I bring through my FTZ? Did I make any major changes? Many companies will just say, “We did our system review, we didn’t change anything and things are working well.” What you want to review is the software used in the zone, the operational procedures used in the zone and how they impact the functionality of FTZ operations. If you make a change to the software or procedures, identify those changes in the system review letter.

Q: How do you account for scrap when making positive and negative adjustments?

A: Scrap is something that you need to identify and work through as part of the processes performed in your FTZ. If scrap is generated through a manufacturing process, then you need to have that accounting defined within your operational procedures for that process. If scrap is warehouse damage or things of that nature, then there are myriad ways to handle it. Basically, it comes down to: How much money is it really worth to the company? If it’s a low-duty-rate item, some companies may just put it on their entry, pay duty and throw it away. Or, if companies deem it in their best interest and are willing to go through the process, they can put it on a 216.

Q: Do other agencies, such as the Food and Drug Administration, U.S. Fish and Wildlife Service, Environmental Protection Agency and Department of Transportation, allow non-conforming products to be imported into an FTZ for later distribution or export to other countries?

A: Yes, it can be done, but my response is not a blanket yes. There are some products that they would restrict you from bringing into the United States. However, you may be allowed to do so under certain circumstances. So, there are FDA non-conforming products that are allowed to be in an FTZ to be held for export. But, depending on the nature of that product, it’s not a blanket approval, if that makes sense.

Q: Can you talk about documentation being scanned and sorted electronically versus physical files?

A: If you’re going to get approval for electronic filing – and you have to get approval from Customs to not have filing cabinets of documents – most CBP officers, in my experience, want it to appear just like a filing cabinet. They want you to go to a file folder that you can open up that has every scanned document, just as if you had gone to a cabinet and opened up a drawer. They want to have that ability and that level of traceability with the electronic files. They want to be able to review them, and clearly see that you’re keeping track of records in the same manner you would with a physical file.

 

FOREIGN TRADE ZONES 101: PART 2

by Trey Boring

In the second installment of this three-part series, Trey Boring, Senior Vice President of IMS Worldwide, Inc., continues the overview of major issues companies must address to operate a compliant Foreign Trade Zone (FTZ). Boring is an expert in the field, and his firm is an internationally recognized authority on the establishment, marketing and operation of Foreign Trade Zones. Part 2 discusses zone activities and the documentation that captures these activities.

Zone Activities

Types of merchandise manipulations include repackaging, picking, packing, inspecting and, in some cases, repairs. Your inventory control system must possess traceability for all of these manipulations. So, if you create work orders to do repackaging, or if you have a pack/pick list that’s transmitted to the floor for picking, you must possess documentation that can serve as justification should Customs conduct an audit or focused assessment.

Managing manipulations is important, but then, too, is tracking manufacturing or production. Here, it is critical that your manufacturing systems properly communicate with your zone software. So, for example, if your end-product is a widget that uses five item As and five item Bs from your FTZ inventory, combined with items C, D, E and F, you have to be able to track all that material from inventory and be able to justify to CBP exactly where all the merchandise went. That is, you must be able to track the building material backward and be able to tell CBP that when I enter a widget it contains five of A and five of B. You’ll also want to apply the value for five As and five Bs with the duty rate of the finished good, if that’s the way your process works.

So, traceability is critical within your inventory control process for manipulations and manufacturing.

Zone Withdrawals

As items leave the FTZ, the key inventory control questions are:

  • What are you doing with the merchandise when it’s leaving the zone?
  • Is it being exported? If it’s being exported, how is it being exported? To where? Do I have documentation?
  • Am I shipping to domestic customers? If so, am I correctly accounting for it in my process?
  • Or, are you temporarily removing inventory?

Let’s say you have to send something out of the zone, but will bring it back into the FTZ. Maybe it’s going to be painted or tested. You need to understand the nature of what is being done to the product when it is released to properly account for these temporary removals. In some instances, a 216 document will suffice. It allows qualified inventory to leave, have something done to it and be brought back into the zone without a duty payment. In some companies, products are received back under a different part number. They must be sent domestic status. You need to know what you’ll do with the merchandise when it leaves the zone because it dictates what closing documentation you’ll need to have.

The next key question is: What is the nature of the merchandise when ultimately leaving the FTZ? The distribution environment is much simpler when it comes to merchandise leaving the zone, especially where there are boxes in and boxes out. Here, you are bringing in product A and product A is always going to be product A, even when sent out of the FTZ to a customer. For production, as talked about earlier, components or raw materials are coming in and finished goods are going out. Understanding the nature of the goods informs the import and export documents created, and also increases one’s ability to trace the imported components within a shipment.

The other big question is: How do you withdraw merchandise? Are you in a port city and immediately exporting something, or are you first transporting it to a port from elsewhere in the United States and then exporting it? Use the 7512 IE when doing a straight export. However, if you’re based in the Midwest and shipping product from there to the Port of Houston for export, use the T&E.

The 06 is the consumption entry whereby the actual payment of duty is made on goods shipped into the United States. How you withdraw the merchandise is the way you close the loop of accountability. The audit trail begins upon admission or receipt and extends until merchandise withdrawal. The entry can be an export entry or a consumption entry, but an entry must be made to show CBP what happened to that merchandise at the end of the process.

Customs Documentation

On the inbound side, when we talked about our zone admission, I mentioned that you need to record the MID code, commercial invoice value and so forth. If you operate an inland zone, you potentially have a 7512 IT in-bond transport document. Returning to the Port of Houston example, if I did not operate an FTZ I would pay duty based on the commercial invoice. I would close out the ocean bill or the air bill at the time of acceptance, depending on how the shipment came into the country. I would potentially have a packing list and other information telling me what’s in the shipment. But I would be using those two elements, especially the commercial invoice and the bill of lading, to make entry in Houston if I didn’t have a Foreign Trade Zone.

Since I have an FTZ – and didn’t close those documents out with an entry – those critical data elements have to come forward now and be addressed. I close the bill of lading with a 7512 IT that says the shipment is going to my zone. Because the CBPF 214 alerts Customs that the merchandise is going to the FTZ, it closes the loop on the information provided by the freight forwarder/broker/shipping line. This document package is what you need to set up as your in-bond or 214 file, and the data elements in all these documents are critical to laying the groundwork for your inventory control process.

The next key question is: How do I get that all that information into my automated system? In most cases, you’re looking at two options: electronically fed or manually inputted. I wish I had a magic way to make either option work great, but they are very specific to your business operation and your functionality. I deal with companies every day that are large enough to have somebody feed all this data via EDI and others that pay people to key data. It’s just one of those things. The information that comes from these documents has to get into your system and it can only happen in one of two ways.

While goods are in the zone, a couple of other customs documents come into play. A little earlier I talked about temporary removal via the 216 document. FTZs use this same document on an annual basis to get a blanket approval for the simple product manipulations they’re approved to do. More commonly, the 216 is used to account for merchandise destroyed within the FTZ. So, the 216 is how you define what has been removed temporarily and how you report an approved destruction process to Customs, as you will not be paying duty on those items.

Another key document is the 214, the same document used for zone admission. Say, for example, your cycle counting process identifies five extra items. Since they are not reflected in the inventory system, they must be added. So to make a positive adjustment to the system, you use a 214. For negative adjustments, you use the 06. Withdrawals from the zone can be done individually or weekly, depending on how you set up the process.

The other key document is the 7512. You must have a 7512 for every export sent out of the FTZ. So, for example, if I have a trailer load going to Canada, the 7512 exportation document I prepare will show the goods leaving my facility and heading to Canada; that document will close everything out from an inventory perspective at the border when that trailer crosses into Canada. And, of course, we talked earlier about the two types of exportation, that is, an immediate export and the transportation and exportation. In either case, we have to maintain copies of the documentation because it closes the inventory loop.

The Audit Trail

The audit trail serves as documentation of the movement of the merchandise from admission to withdrawal and everything in between. Documents such as the 214, 7512, 7501 and 7512 need to be in the right place and in the correct file because they serve as evidence CBP wants to review. Here, again, the importance of physically matching the inventory is paramount.

With your 214, you need to have your billing commercial invoice, any in-bond documentation, the packing list if you’ve got it and your consumption entry. You need to have the cargo release from ACE, the 7501 and the withdrawal documentation from your automated system, spreadsheet or other tracking method. For exports, you need the 7512 document and the withdrawal.

Every year you’re required to do an annual reconciliation, system review and an annual report for the FTZ board report and grantee. Always keep these three things in a file, because Customs may come in and ask for them. Regarding the reconciliation and system review, you’re required to send a certification letter to Customs 10 days after completion to advise them that the items have been done and are ready for review. Customs has assessed thousand-dollar-plus fines in certain ports if they’ve not seen the certification letter.

Last, there is the blanket 216 that we talked about earlier for standard manipulation and manufacturing.

Conclusion

Operating a foreign trade zone requires a level of inventory compliance and recordkeeping that can seem like a daunting task. However, the Foreign Trade Zone program is the most flexible bonded facility program. With bonded warehouses, for example, special permissions are often needed, and there are restrictions on what can be done. FTZs are designed to work with your operation. Inventory control is the cornerstone of FTZ compliance. If you do not manage inventory correctly, you will not be able to manage compliance correctly.

CBP documentation continues to move forward with the implementation of the Automated Commercial Environment (ACE), and more and more of these documents are moving toward electronic filing. For example, the 214 is slotted to move to ACE this year. ACE makes it easier to deal with these processes.

Last, FTZ compliance is all about the data relative to merchandise in the FTZ. CBP trusts you to hold these goods, and you need to be able to prove that you can identify every item and its disposition from admission to withdrawal.

FOREIGN TRADE ZONES 101: PART 1

by Trey Boring

In this three-part blog series, Trey Boring, Senior Vice President of IMS Worldwide, Inc., presents an overview of the major issues companies must address to operate a compliant Foreign Trade Zone (FTZ). Boring is an expert in the field, and his firm is an internationally recognized authority on the establishment, marketing and operation of Foreign Trade Zones. In Part 1, Trey discusses key requirements, especially inventory control.

 

Let’s start with a fairly standard definition for a Foreign Trade Zone. If you’ve been around the program at all, you know that it’s an area within the geographic boundary of United States that has been approved by the U.S. Customs and Border Protection (CBP) as being outside its territory. That means that an FTZ is outside of the entry process for purposes of duty collection. Items can be brought into a foreign trade zone and manipulated via various approved activities. Customs duty is determined when that merchandise leaves this zone. Basically, in simplest terms, an FTZ resembles a preapproved business island within the United States.

With that definition in mind, let’s go over the basics of how a Foreign Trade Zone functions relative to inventory control, customs documentation and customs compliance.

Key Requirements

To operate a compliant FTZ, you must have an inventory control system that can tell you what merchandise is in your zone and the quantity. Customs is interested in knowing what’s there because you haven’t paid taxes on it – yet. In a sense, you’re holding CBP’s tax money, so they want to make sure you have a good accounting system.

The system also must track what is done to the merchandise. Obviously, you received it and shipped it, but how did you manipulate it? Did you simply retag the merchandise? Or, did you perform an activity that constitutes manufacturing or production within the Foreign Trade Zone definition? Did you manipulate the merchandise enough that it changed its status and/or changed its tariff classification? The inventory control system must track what you do with the merchandise no matter what activities you undertake in a Foreign Trade Zone.

Thus, the basic requirements of customs compliance are contained in the answers to some simple questions:

  • Can I explain to CBP what happened to my merchandise?
  • Can I track the sequence of merchandise coming into my facility, the activities performed and their exit from the facility?
  • And, can I show them that sequence in a format that they understand?

Another key item is customs documentation. We’ll talk later about the inbound and outbound documentation that is required for you to process.

Zone Activities

Many people ask: What activities are allowed in a Foreign Trade Zone? The answer is: Anything you do in your regular business facility can be done in a Foreign Trade Zone with the right approvals. Typical activities include distribution, storage, testing, repackaging, manufacturing, repair and assembly. The FTZ program is designed to be as free as possible to allow you to perform the operations that fit with the normal processes accomplished in your facility.

The question arises: If these are the normal processes you are already performing in your facility, why establish a Foreign Trade Zone? The answer takes us back to the definition of the FTZ program: It allows you to import merchandise without paying duty. Sure, all of these activities can be done in someone’s facility today but to do so you first pay duty at the port, the airport or the border crossing where the merchandise entered the United States. In a Foreign Trade Zone, you do not make that payment at the border, and what you do to the item while it is in your facility determines the actual duty amount paid. So, you get the benefit of duty deferral. You get the manipulation/manufacturing benefits (if you qualify to change the nature of a product). And, you can choose to apply the lowest duty rate for the imported item. So, the ability to manage duty and the entry process is the key reason why companies establish FTZs, not to mention the freedom the program accords companies to limit interference.

Inventory Control

So let’s talk about inventory control in a little more detail. Basically, we look for a stair-step method when talking about inventory control. So, starting at the beginning, zone admission refers to merchandise being admitted to the zone or the act of receiving goods into your zone facility.

Your inventory control process must capture the import documentation. Since you’re paying duty later in the process and not at the border, in order to close out the customs documentation you must have the import documentation provided on the admission document – the 214 – when filing to receive the goods. Further, you need a way to tell Customs “I checked the merchandise and the count is right” or “This is what I brought into the Zone and this is the variance.” You must have a physical accounting of that merchandise when it comes into your FTZ facility.

Also, you must perform a compliance review of the merchandise and the documentation. It goes to the point: Did I get everything I expected? Did the vendor send the wrong invoice? Are the products in the container listed on the invoice? Deviations happen, and you must identify them and offer a compliance solution.

Another important aspect is physical movement of merchandise. When dealing with inventory control, two things are important. First you must establish amount, value, tariff classification, Manufacturer Identification (MID) code, etc. – all of these data elements will be required later when you make entry, and your system must be able to generate them. Also, your system must be able to track where the merchandise goes because Customs wants to know what you have done with the merchandise since receipt.

The next focus is selecting your inventory methodology – cycle count or an annual inventory. Most companies select cycle counts. Basically, you must provide Customs a guarantee that you are counting that merchandise in your FTZ at least once a year. That’s the regulatory requirement. You can do that by shutting down your facility to perform an annual inventory where you can invite Customs to watch or you can perform continuous cycle counts and report variances as they occur. Either way, it is a critical element because you have to prove again to Customs that you can fully account for the merchandise that they have placed in your care without duty payment.

Common inventory control issues revolve around the data. Sometimes companies don’t have a good way to input their import documentation. Other problems involve value discrepancies. Then there are common warehouse issues such as someone on the dock didn’t count everything correctly and during the cycle count six weeks later you find you did not receive all of the expected 1,000 pieces. The other case is concealed shortages.

It is crucial, too, to analyze how your inventory control systems (e.g., warehouse management or manufacturing system) communicate with your FTZ software. Make sure these systems capture every transaction. Most compliance problems arise from systems that are not tracking everything. Then, you either reflect more inventory than you really have or less inventory than you’re supposed to have. So, the larger your zone – and more complicated the systems – the greater care you must exercise to assure the systems are interacting correctly.

 

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