Manufacturers: Use FTZ to Become More Valuable to your OEM Customers

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Manufacturing supply chains are extremely competitive. As many original equipment manufacturers (OEMs) use foreign trade zones (FTZs) to reduce costs, you can gain an advantage over competitors, especially overseas competitors, by activating your facility as an FTZ.

When you become an FTZ, you remove the footprint of your operation from U.S. customs territory, deferring the payment of import tariffs. Instead of import tariffs being due upon entry into the United States, tariff payments are due upon entry into U.S. customs territory (upon sale to a non-FTZ customer).

Why are so many OEMs FTZs? Many OEMs in the heavy equipment industry (for example) operate FTZs because heavy equipment often has a 0 percent import tariff. This means someone can import a tractor from abroad and pay a 0 percent tariff.* However, OEMs that assemble tractors in the United States must pay tariffs on imported components, such as hydraulic sub-assemblies. This makes domestically assembled tractors more expensive than an imported tractor, because of the cost of tariffs on sub-assemblies. If activated as an FTZ with production authorization, then tractor assembly operations can defer the tariff on hydraulic sub-assemblies and sell tractors to the U.S. market with the final duty rate of 0 percent applied. The tariff on hydraulic sub-assemblies is converted into the tariff on the final product: 0 percent. This maintains the competitiveness of U.S. manufacturing, keeping final assembly viable in the United States compared to overseas assembly.

What if you are a manufacturer of hydraulic sub-assemblies in the United States, and you import your hoses from Europe? How do you maintain your position your customer’s supply chain, when facing competition both domestically and from overseas? You can activate your facility as an FTZ and transfer your product via zone-to-zone transfer to your OEM customer. In this case, the product has never entered into U.S. customs territory, and your imported components are also converted into the final 0 percent tariff rate of the tractor. You have saved your customer the cost of the import tariff of your hoses. This makes your products more cost competitive to non-FTZ domestic competitors and reduces the risk of a foreign competitor having a cost advantage over your products.

Bottom line: Activate your facility as an FTZ to maintain a competitive advantage over competitors domestically and internationally, especially in key FTZ industries such as heavy equipment. Non-FTZs are at greater risk of being displaced by FTZs or overseas competition. Show your customer you are committed to partnership by talking to them about their FTZ operation, and how a zone-to-zone transfer might reduce your collective costs.

In northern Illinois, FTZ #176 encompasses 11 counties running from LaSalle-Peru, Illinois and north up to the Wisconsin state line. Distribution companies within that region have the ability to lower costs and boost their competitive edge by becoming part of the zone.

*Excluding product and components subject to Section 301 or Section 232 tariffs, or other intentional federal policy measures restricting imports of a specific product or country of origin.

To learn more about how FTZ #176 can help you gain a competitive edge, call 312-221-1115 or contact us online.

Distributors: Use FTZ to Reduce Inventory Carrying Costs

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An efficient supply chain is the competitive differentiator of the decade for distribution companies. Since before the onset of COVID, companies have been storing more product in inventory to combat the supply chain crisis, eating into cash flow. Activating a facility as an FTZ will help companies hold onto their cash as they increase inventory volumes.

When you activate your facility as an FTZ, you remove the footprint of your operation from U.S. Customs Territory. This allows you to delay the customs entry process, and therefore the payment of import tariffs, until after your product leaves your facility and heads to a customer, rather than paying the tariff upon the product entering the United States. Since many distributors pass tariff costs onto their customers anyway, an FTZ can remove a distributor from the business of lending the tariff cost to their customer while the inventory is in the warehouse.

When you look at your warehouse, do you see a lot of imported product sitting there, eating into your cash flow? If your inventory is imported from China (Section 301 tariff) or is Steel or Aluminum (Section 232), it likely has increased the cash flow impact by as much as 25%. Imagine now, that you defer that 25% premium paid until after that product has left your facility. This can reduce inventory carrying costs by as much as 20%. How would you use that extra cash, rather than lending it to your ultimate customers? 

In northern Illinois, FTZ #176 encompasses 11 counties running from LaSalle-Peru, Illinois and north up to the Wisconsin state line. Distribution companies within that region have the ability to lower costs and boost their competitive edge by becoming part of the zone.

For more information about joining FTZ #176, call 312-221-1115 or contact us online.

How to Get Started with FTZ #176

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The benefits of Foreign Trade Zones (FTZ) are many, from increasing cash flow to improving supply-chain timelines and inventory control.

They continue to help American companies compete in the global economy, giving cargo preferential treatment with import duties deferred, reduced, or eliminated.

FTZ #176 encompasses the northern Illinois region of Stephenson to McHenry counties from west to east, and the Wisconsin Stateline to LaSalle/Peru from north to south (see service area map). Businesses within that region can activate their facility—at their current location—as an FTZ site or subzone and access the associated cost benefits.

Your company should consider becoming an activated FTZ #176 site or subzone if you:

  • Are located within 60 miles or 90 minutes of the Rockford Port of Entry, which is the Greater Rockford Airport and you are in the FTZ #176 service area.
  • Import a significant volume of products with a high value and/or you expect your imports to grow.
  • Re-export a substantial percentage of imports.
  • Hold significant value of imported inventory.

FTZ #176 Administrator Carrie Zethmayr will help guide you through the steps to get started.

We can conduct a no-cost feasibility analysis and help you gather all the necessary information you will need to provide to help us make an accurate determination of the potential value for your company.

The process to become an activated FTZ site or subzone typically follows these steps, all of which can be facilitated by FTZ #176 Administrator:

  • Conduct a feasibility analysis with FTZ #176 to determine potential value of the program to your business
  • Secure approval from the Greater Rockford Airport Authority board
  • Submit completed application to the National FTZ Board.
  • If pursuing production authority to secure the inverted tariff benefit, complete an additional application to the National FTZ Board that gets posted to the Federal Register for public comment (this is an optional step)
  • Activate your FTZ site or subzone with Customs & Border Protection; this step requires that you demonstrate requisite security measures and customs entries processes and procedures per the CBP Foreign Trade Zone manual.

Fees imposed by the National FTZ Board and the Greater Rockford Airport Authority are outlined in the FTZ #176 Tariff. There are no fees imposed by U.S. Customs & Border Protection, though we can help you estimate potential additional costs for such items as upgrading building security, implementing software, legal fees, and more.

Get the help you need to get started with an FTZ by contacting FTZ #176 Administrator Carrie Zethmayr today 312-221-1115 or carrie@zethmayr.com.

FTZ #176: Our History and our Partners

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Foreign Trade Zones tend to be pictured as warehouses on airport property, a third-party warehouse where companies can store imported inventory to defer and reduce import tariffs.

While FTZ #176 was first established by the Greater Rockford Airport Authority, its growing number of partners now span industries and manufacturing across an 11-county region in northern Illinois. 

For the past 31 years, FTZ #176 has encompassed the Northern Illinois region that spans Stephenson to McHenry Counties from West to East, and the Wisconsin Stateline to Lasalle/Peru from North to South. Businesses within that zone are able to activate their facility, at their current location, as an FTZ site or subzone and access the tax benefits that come with it.

That’s a boon for manufacturers, who are struggling with global supply chain holdups due to congestion at ports of entry, high tariff rates, inflation and instability in Eastern Europe. By operating within the FTZ, companies can bring the customs clearance process in-house and in doing so, offset some of that ongoing uncertainty and cost.

The Greater Rockford Airport Authority was on the ground floor of establishing FTZ #176 back in 1991, in an effort to help local manufacturers who utilize the airport for transporting goods. At the time, Chrysler’s Belvidere Assembly plant was among the first approved FTZ operators in the region. It maintained that status until 1997, and the zone was dormant until 2003.

Since that time, zone operators across Northern Illinois have begun taking advantage of FTZ opportunities in growing numbers. They’ve found it leads to improvements in their inventory management systems, such as reducing inaccurate inventory and improving product tracking. Likewise, they can save between one and three days’ worth of holdup at the port of entry as their product waits on processing and inspection. With prior customs approval through the FTZ, no one needs to wait for a customs inspector to break the seal or open a package. Instead, inventory gets moved along the process quickly.

At present, FTZ #176 has a collection of partners throughout Northern Illinois, including:

  • Bergstrom Inc.
  • Brake Parts Inc. LLC
  • Cellusuede Products Inc.
  • Chicago Importing Company
  • Leading Americas Inc.
  • Mitsubishi Logisnext Co., Ltd.
  • PCI Pharma Services
  • Schenker
  • Staal & Plast USA, Inc.

Activating your facility as an FTZ can you save your company both time and money. Learn more about how FTZ #176 can impact your bottom line and improve delivery times by contacting Carrie Zethmayr, FTZ Administrator at (312) 221-1115, emailing at carrie@zethmayr,com or visiting https://ftzrockford.com/ and https://flyrfd.com/.

How FTZ #176 Can Save Your Business Time and Money

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As manufacturers and distributors continue to be plagued with growing supply-chain costs and constraints, Foreign Trade Zone #176 is a tool that’s been available in Northern Illinois for more than 30 years to help companies reduce costs, tighten supply-chain timelines, and carry more inventory.

Following the pandemic, inventory management practices have rebalanced from “just-in-time” to “just-in case,” with businesses holding more inventory to ensure they don’t get caught unprepared when a supply chain disruption hits. As a result, warehouses are bursting at the seams and inventory carrying costs are exploding.

Activating your facility as a Foreign Trade Zone (FTZ) subzone of FTZ #176 is an increasingly popular way to reduce inventory carrying costs and reduce overall supply-chain risk. Within an 11-county area in Northern Illinois, businesses can become FTZ subzones and bypass customs delays at the port of entry. Rather, customs processing happens at a company’s subzone site and the company defers the import tariff until the product actually leaves its facility. FTZs were developed for the express purpose of supporting US-based businesses while saving them time and money.

Consider this: A shipment arrives in a U.S. port of entry and is placed in a holding area until a customs inspector can sign off on it. That process can take between one and three days. Then, it moves on to a U.S. factory to be assembled before it can go to market.

In a FTZ subzone facility, that same shipment bypasses port customs and heads directly to your subzone. There, it can begin the assembly process so that plant operations continue without disruption. The import tariff is due when the product leaves your facility, rather than at the time the product is imported. This deferral can lead to a significant decrease in inventory carrying costs, especially if your imports are subject to section 301 or section 232 tariffs.

Additional FTZ benefits include:

  • Duty Exemption: No duties are collected on re-exports, or goods destroyed in the FTZ. That’s a particular benefit to companies with fragile imports or manufacturing processes that result in large amounts of scrap.
  • Duty Deferral: Taxes are deferred on imports until they leave the subzone. Additionally, products can be transferred from one zone to another without being taxed. There is no time limit on how long products can stay in a subzone.
  • Duty Reduction: If your finished good is valued at a lower US Harmonized Tariff rate than the rate on foreign inputs, you will be taxed at the rate of the finished product. Duty also is not owed on labor, overhead or profit attributable to zone production operations.
  • MPF Reduction: The Merchandise Processing Fee is only paid on goods once they leave the subzone and enter the US Customs territory. Additionally, companies only need to file a single entry for all good shipped over the course of a week, reducing brokerage fees.

Overall, cash flow improves and inventory carrying costs can decrease by as much as 25 percent when utilizing an FTZ. For businesses throughout Northern Illinois, FTZ #176 is based at Chicago Rockford International Airport and can help individual companies establish themselves as subzones.


To learn more about utilizing a Foreign Trade Zone to expedite your business processes, call Carrie Zethmayr, Administrator of FTZ #176 at (312) 221-1115, email at carrie@zethmayr.com or visit https://ftzrockford.com/.

Common Myths of the Foreign Trade Zone Program

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What is… and what isn’t… a Foreign Trade Zone?

When discussing foreign-trade zones (FTZs), the conversation can get really complicated. To quickly highlight the benefits of operating as a foreign trade zone, it is beneficial to first clear up common myths that often cause confusion. If a company operates its facility as a foreign-trade zone, it has effectively removed its facility from U.S. customs territory. This allows the company to import foreign product directly into its facility and defer its clearance through Customs & Border Protection until the point when the product leaves its facility to enter U.S. Commerce. The major benefits are the deferral of import tariffs, and sometimes the reduction or elimination of import tariffs. In today’s environment of increasing tariff rates, the deferral benefit alone can have a huge impact on a company’s cash flow.

Common myths about FTZs that often prevent a meaningful discussion include:

Myth #1 – The foreign-trade zone is a warehouse at the airport where a company can store its product
Reality – The foreign-trade zone can be your facility, your warehouse, and you control the inventory

Some airports and some private companies operate a FTZ warehouse to service third-party inventory. In FTZ #176 in Northern Illinois, all FTZ operators are private companies that have activated their respective facilities as foreign-trade zones. These facilities are spread across 11-counties in Northern Illinois, and are not geographically limited to proximity to any port-of-entry. Current FTZ #176 operators primarily service their own imported inventory, and do not actively market FTZ warehouse services. If you are interested in accessing FTZ benefits, we can explore activating your facility (see your warehouse? That can be your FTZ).

Myth #2 – The foreign-trade zone is geographically limited to a pre-approved zone
Reality – as a potential FTZ operator, forget the zone map exists; we can get you activated

Companies often ask, “Is my business located in FTZ #176?” The map of FTZ #176 can be deceiving, and frankly is irrelevant. FTZ #176 covers 11 counties in Northern Illinois. There are several borders that indicate the process a company may be required to follow to activate as an FTZ, however the difference is minimal. If a company is located outside of the FTZ #176 service area, we will be glad to help the company connect with the adjacent FTZs in Chicago (FTZ #22), Peoria (FTZ #114), Moline (FTZ #271) or Beloit (FTZ #41). As a potential FTZ operator, I commit to you that regardless of the location of your facility we can find a way to activate your operation as a foreign-trade zone.

Myth #3 – My product has to be imported through a specific port-of-entry to use the FTZ
Reality – Your product can come into the U.S. through any port by any means, and never has to pass through the FTZ grantee port-of-entry

The grantee for FTZ #176 is the Greater Rockford Airport Authority (GRAA), which controls the Chicago Rockford International Airport (RFD). Most recent figures place RFD as the 19th largest air cargo airport in the U.S., having realized significant growth in recent years from cargo operators ABX Air, ATI, and Atlas Air. With capacity to support additional investment, continued growth in cargo operations is projected for RFD. However, to use the foreign-trade zone, a company can be an activated FTZ in Rockford, import its product via ocean freight through the Port of Los Angeles, and then export the product via the Port of Houston, and still be activated by FTZ #176, administered by the Greater Rockford Airport Authority. The actual ports used for import and potential re-export are not limited to the port that administers the foreign-trade zone.

The main idea is that a foreign-trade zone can be yours to control, and it is a flexible tool that can be set-up anywhere to accommodate your unique situation. If recent tariff increases have had an impact to your company’s bottom line or cash flow, let’s explore further to see whether a foreign-trade zone might be a tool that can help you set-up a more sustainable future for your business.

TOP FIVE REASONS TO BECOME AN FTZ

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