Any business that operates on the supply chain has heard of Foreign Trade Zones and the incredible benefits that they offer. Storing various goods in FTZ warehouses for long periods of time, and being strategic about when and how tariffs are paid are two typical examples of how companies use Foreign Trade Zones. However, there are certain goods and materials that have inherently greater benefits than others when stored in a Foreign Trade Zone.
For over 30 years, ITC Diligence International Inc. has moved billions of dollars in goods and materials helping global businesses that function on the supply chain. These businesses have all enjoyed cost savings and streamlined operations by implementing the uniquely tailored logistic solutions that only an experienced international customs broker can offer.
In this same timeframe the logistic experts at ITC Diligence International Inc. have identified specific goods that see a greater benefit from the FTZ program. The main goal of storing goods in an FTZ warehouse is to significantly reduce or completely eliminate any tariffs or CPB taxes, while operating within federal regulations and remaining compliant with all applicable laws.
Liquor and Tobacco
Currently, these two commodities are the only ones taxed by the federal government when being imported, and the tax is hefty. The tax is calculated from the FOB (free on board) price and can be up to 80% of this value. FOB value simply means the cost of goods when the seller sells them to a buyer. Regardless of industry stigmas, an 80% tax on the money received for selling goods is staggering!
Both liquor and tobacco companies take full advantage of FTZ warehouses and their benefits knowing this tax would destroy any profit or solvency. Foreign Trade Zones allow for the deferral or elimination of this federal tax if these goods are exported. Federal Trade Agreements continue to be arranged that can help offset duties, but currently the only way to avoid this federal tax is with the use of an FTZ warehouse.
Apparel and Textiles
Clothing and the materials to make clothing and apparel receive a heavy duty when imported from pretty much anywhere in the world. Most countries see a 10-30% duty on imported apparel and textiles, but if these goods are coming from China, the duty can be up to 50%. A large percentage of clothing that Americans wear is made outside the country and imported which means these companies also need a robust Foreign Trade Zone program and effective supply chain logistics strategy.
Additionally, Forced Labor laws and WRO requirements on imported apparel and textiles are ensuring that the clothing worn by Americans is not made in conflict zones, through forced or child labor, and meet other ethical guidelines for manufacturing and distribution. When a WRO (Withhold Release Order) is issued, the importer has 3 months to prove, using a certificate of origin and evidence, that their goods were not made through forced labor. During this investigative period, the goods in question can sit in an FTZ warehouse, unharmed and untaxed.
Automotive and Electronics
The gadgets that entertain us and the vehicles that get us moving all have components that are imported. What is different about automotive and electronics is that they typically have a much lower duty than other goods, but because these materials are so expensive to import they carry a very high duty value. A container full of Lamborghinis being imported could carry a 10% duty that would be substantially higher than a container full of cotton with a 20% duty. Electronics are the same way and both of these industries use materials that are becoming more and more challenging to source.
Automotive manufacturers are sourcing brand new materials for Electric Vehicle (EV) manufacturing and these days children all have and use cell phones, tablets, and laptops. Coming from China, the tariff can be up to 25% for automotive and electronics imports. These two industries specifically are heavy users of FTZ warehouses and 4PL operators.
The pharmaceutical industry is huge and supports the health and well being of people all over the planet. It’s no wonder that pharmaceutical companies are some of the biggest beneficiaries of FTZ programs and the 4PL strategy. Heavy regulation from the federal government means labeling and packaging requirements can change quickly and entire warehouses of inventory can be pulled at a moment's notice if they are deemed dangerous or out of regulation.
FTZ warehouses are very attractive to pharmaceutical businesses, and as the average life expectancy continues to increase, the need for advanced medicine that can be delivered quickly and safely will only grow.
Alternative and Renewable Energy
Energy has always been heavily regulated. The efforts of private enterprise, global governments, and generational visionaries to see a cleaner and healthier future means the renewable and alternative energy sectors have seen explosive growth. However, everything from the cobalt sourced for batteries to the carbon used in windmill turbines comes under the scrutiny of the CBP and can be subject to tariffs and duties.
Greensafe companies that are investing research and development resources into alternative and renewable energy all know that FTZ warehouses are the best way to stay within government regulations while keeping profits intact.
TRQ’s (Tariff Rate Quota) create a tier system for tariffs that allows a limited amount of goods to be imported at a lower duty rate (within access) and an unlimited amount to be imported at a higher duty rate (over access). Recently, the metals industry has had additional licensing requirements introduced and tariffs for aluminum and steel must be paid through a TRQ.
Another industry that has to deal with TRQ’s is sugar, but where sugar is cheap and easily sourced, metals like aluminum and steel are not. The costs of mining, molding, and moving metal is massive. This brings the tariffs to a much higher dollar value than sugar and the benefit of an FTZ warehouse becomes even more attractive.
The 4PL Operator with 30 Years of Supply Chain and Logistic Problem Solving
ITC Diligence International Inc. built a reputation on reliable and scalable supply chain strategy that is designed to meet the needs of importers and exporters who face rising tariffs, government regulation, CBP duties and many other supply chain challenges. Logistic experts are ready to help answer any questions your business may have around supply chain problems, FTZ warehouses and their use, or any other 4PL strategy.