I recently visited PortMiami for the dedication of its 50-foot harbor, which will allow larger vessels to reach the docks fully laden with containers. The port authority expects
these types of vessels to start arriving from Asia via the Panama Canal, and its expanded set of locks, sometime next year. But with new on-dock rail capabilities and improved truck access to the interstate, officials now have the capacity to handle more freight and are actively striving to attract new shippers from Asia, Latin America, and elsewhere.
One priority is doing a better job promoting the port’s foreign trade zone. The FTZ has more than 5 million square feet of warehouse space within a large swath of the metropolitan area, including Miami International Airport. Many companies don’t realize the benefits of using an FTZ for saving money on customs duties and merchandise processing fees.
Take Miami-based Costa Farms, one of the nation’s largest growers of ornamental plants. You can spot many of its potted palms in European hotels. They are made with coconut husks from Malaysia, clay pots from Italy and Germany, and seedlings from Costa Rica and grown in a greenhouse in South Florida for two years before they are exported in specialized containers with lights and refrigeration. For years the company has paid duty on all those imported inputs, but the port’s trade development team has made the case that significant savings could be realized if it participated in the FTZ.
When goods are in an FTZ they are treated as if they are in foreign territory for customs purposes and no duty is required until they are brought into the U.S. domestic market. That means duties and fees are deferred for two years before they are sold to retailers such as Walmart or Lowe’s and re-exports are duty free—all of which improves cash flow.
The FTZ is also benefitting a company that makes energy drinks in Miami for export with plastic bottles from Asia and powdered ingredients from the Dominican Republic. The company has hired 20 people in Hialeah and is making a profit, FTZ Manager Eric Olafson told me last year during a PortMiami tour.
Let’s be clear: it’s not all peaches and cream being in an FTZ. Experts on a recent American Shipper webinar pointed out that FTZ regulations and procedures are complex; strict reporting and recordkeeping requirements are required to show the government what happened to each item; and a software tool is needed to keep track of all the information.
Articles may remain in an FTZ indefinitely, unlike a bonded warehouse that only has a four-year limit. With the approval of the zone operator, any operations may be conducted in an FTZ, including storage, testing, manufacturing, chemical processing and repairs.
Articles may be placed in an FTZ under one of four statuses, Bruce Leeds, senior counsel at Braumiller Law Group, told the audience. Under “privileged” foreign status the duty rate is frozen at the time articles are placed in the zone, such that if the normal duty is 5 percent and they are made into a product that carries a 10 percent duty the importer would pay 5 percent duty on the original value of the article.
The duty rate for “non-privileged” foreign status depends on what the article is at the time it is removed for domestic consumption. In this scenario, if the same articles are manufactured into a product with a 2.5 percent duty rate the importer only pays 2.5 percent duty on the original import value.
Domestic articles can also be placed in a zone.
An FTZ allows an importer to consolidate shipments into a single merchandise processing fee. An importer who receives 10 shipments a week subject to the maximum $485 MPF can file a consolidated entry for all removals from the FTZ during the week and save $4,365, Leeds said.
Leeds and Linda McKee, senior director of solution management at SAP Global Trade Services, said there are very strict accountability requirements for an FTZ. Companies need an excellent record-keeping system to account for everything in the zone—is it in inventory, has it been sold?—and trace all goods removed from the zone back to its original import, even after it has been modified or manufactured into another item. Those controls are important because U.S. Customs can spot-check entries and conduct audits of zone operations.
To get approval for a zone, a company needs to demonstrate up front that it has the systems in place to track items and can generate accurate reports.
FTZs aren’t just for manufacturers. Retailers might use them for storage if there is a textile restraint on a garment. In one case, a Lamborghini importer used an FTZ to swap out engines that didn’t conform to EPA regulations and re-export the non-conforming engines, Leeds said.
This column was published in the November 2015 issue of American Shipper.