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 firstname.lastname@example.org or visit https://ftzrockford.com/.