Trey Boring. Crosman Corporation. IMS Worldwide, Inc. Integration Point

Transcription

1 1 ABC s of an FTZ Jodi Earle Crosman Corporation Trey Boring IMS Worldwide, Inc. Liz Connell Integration Point

2 Agenda What is an FTZ? Zone Benefits Cost Benefit Analysis Operations What 2

3 WHAT IS AN FTZ?

4 History of the FTZ Created as part of the New Deal Roosevelt To relieve U.S. Companies of punitive tariffs Create a level playing field for U.S. Operations Expanded to include Manufacturing Petroleum The FTZ Board Department of Commerce Department of Treasury 4

5 History of the FTZ FTZ Board Staff Part of the Department of Commerce Executive Secretary and Staff Trade Enforcement Changes to the Program ASF New Regulations (2012) 5

6 6 What Is an FTZ? An area inside the United States that is designated as being outside Customs Territory. Where items are brought into the Zone duty free. Where Customs duty is determined when the merchandise leaves the Zone.

7 What Can I Do in an FTZ? Distribute Store Test and Inspect Repack Assemble Repair Manufacture 7

8 How Do Companies Make Money in an FTZ? 8 Duty Deferral Duty Elimination Duty Reduction Inventory Tax Savings

9 What is a Zone site? Magnet Site Industrial Park Airport Industrial Development Port Industrial Development Rail Yard Industrial Development Subzone/Usage Driven Site Company s Facility/Facilities 9

10 ZONE BENEFITS

11 Duty Deferral Duty is not paid when an item enters the Zone. An item enters the Zone in January. Duty is paid when the item leaves the Zone. The item leaves the Zone in April. Four months of duty deferral. 11

12 Duty Elimination Testing and inspection is conducted in the Zone duty free. All rejected and destroyed items are duty free. Exports are duty free. All items exported from the Zone are duty free. 12

13 Duty Reduction For manufacturing Zones. The Zone allows a company to choose the lowest duty rate associated with its components and finished product(s). A company imports 3 components. A has a duty rate of 10%. B has a duty rate of 9%. C has a duty rate of 8%. 13

14 14 Duty Reduction The company s finished product has a 5% duty rate. The company will pay for the value of the components at the finished product rate. A from 10% to 5%. B from 9% to 5%. C from 8% to 5%. This reduction means a savings of 5% to 3%.

15 Merchandise Processing Fee Savings 15 Each entry into the United States is assessed a Merchandise Processing Fee (MPF). Manufacturing Foreign-Trade Zones are allowed one entry per week. The MPF is collected on that one entry.

16 COST BENEFIT ANALYSIS

17 Cost Benefit Analysis Total Import Value HTSUS of Items Duty Rate Percent of items exported Inventory Turn ratio How long does your inventory sit? Company s Oportunity Cost of Capital Rate 17

18 Cost Benefit Analysis How many entries do you file per year? What is your average MPF per entry? How fast are you growing? What trade agreements do you use? NAFTA CAFTA Etc.. 18

19 Assumptions Used in FTZ Cost-Benefits Analysis Sample Manufacturing Case Annual cost, dutiable imports $120,000,000 Weighted average duty rate 1.00% Percent reject or scrap imported merchandise 0.67% Percent of imported merchandise re-exported 4.00% Percent of imported merchandise sold to the military 0.00% Annual cost, imports subject to duty inversion $40,000,000 Inverted tariff (finished product duty rate) 0.00% Affected raw material/component duty rate 4.90% Inventory turns per year 40 Opportunity cost of capital 5.0% Drawback system in place? Yes FTZ cost advantage (FTZ differential) over drawback 25.0% Average "Merchandise Processing Fee" per entry $139 Average number of entries per year 3000 Annual growth rate, FTZ operating expenses, etc. 3.0% Annual growth projections from current year Year 2 5.0% Year 3 5.0% Year 4 5.0% Year 5 5.0% Application and activation expense (estimated)* $125,000 Increased operating expenses (accounting/tracking/reporting/systems mod.) $150,000 Grantee fees (estimated) $9,000 * Application preparation, Customs activation and Operator training. Actual cost will depend on the sophistication of existing systems and other variables. This is a preliminary analysis which is only as accurate as the assumptions used to generate the following results. The analysis should not be relied upon until the assumptions, calculations, and results contained herein have been verified. Prepared by IMS Worldwide, Inc., Houston, Texas 19

20 Foreign-Trade Zone Cost-Benefits Projections: Sample Manufacturing Case FTZ Benefits & Expenses By Type Year 1 Year 2 Year 3 Year 4 Year 5 5-YEAR TOTAL FTZ Benefits Re-Exports 1 $12,000 $12,600 $13,230 $13,892 $14,586 $66,308 Reject, scrap, & military sales 8,040 8,442 8,864 9,307 9,773 44,426 One-time benefit Ongoing duty deferral 1,430 1,501 1,577 1,655 1,738 7,901 Inverted Tariffs 1,868,468 1,961,891 2,059,986 2,162,985 2,271,135 10,324,465 Merchandise Processing Fee savings 390, , , , ,607 2,157,538 Total FTZ Benefits $2,280,398 $2,394,418 $2,514,139 $2,639,846 $2,771,838 $12,600,638 FTZ-RELATED EXPENSES Internal FTZ Operation Expenses $150,000 $154,500 $159,135 $163,909 $168,826 $796,370 Grantee fees 9,000 9,270 9,548 9,835 10,130 47,782 TOTAL FTZ-RELATED EXPENSES $159,000 $163,770 $168,683 $173,744 $178,956 $844,153 NET FOREIGN-TRADE ZONE BENEFITS $2,121,398 $2,230,648 $2,345,456 $2,466,102 $2,592,882 $11,756,486 1 Export benefits to Canada and/or Mexico subject to applicable free trade agreements. Application and activation expense $125,000 Totals may vary, due to rounding. 2 One-time benefit available after 1 weeks $28,599 This is a preliminary analysis which is only as accurate as the assumptions used to generate the following results. The analysis should not be relied upon until the assumptions, calculations, and results contained herein have been verified. 20

21 Assumptions Used in FTZ Distribution-Only Cost- Benefits Analysis Sample Apparel Distribution Case Annual cost, dutiable imports $125,000,000 Weighted average duty rate 22.50% Percent reject or scrap imported merchandise 0.25% Percent of imported merchandise re-exported 0.00% Percent of imported merchandise sold to the military 0.00% Inventory turns per year 3 Cost of domestic goods used in exports $0 Opportunity cost of capital 4.0% Drawback system in place? No FTZ cost advantage (FTZ differential) over drawback 100.0% Average "Merchandise Processing Fee" per entry $289 Average number of entries per year 1500 Annual growth rate, FTZ operating expenses, etc. 3.0% Annual growth projections from current year Year % Year % Year % Year % Application and activation expense (estimated)* $110,000 Increased operating expenses (accounting/tracking/reporting/systems mod) $185,000 Grantee fees (estimated) $25,000 * Application preparation, Customs activation and Operator training. Actual cost will depend on the sophistication of existing systems and other variables. This is a preliminary analysis which is only as accurate as the assumptions used to generate the following results. The analysis should not be relied upon until the assumptions, calculations, and results contained herein have been verified. Prepared by IMS Worldwide, Inc., Houston, Texas page1 21

22 Prepared by IMS Worldwide, Inc., Houston, Texas Foreign-Trade Zone Cost-Benefits Projections: Sample Apparel Distribution Case 22 $175 Million in imports, no exports, no manufacturing FTZ Benefits & Expenses By Type Year 1 Year 2 Year 3 Year 4 Year 5 5-YEAR TOTAL FTZ Benefits Re-Exports 1 $0 $0 $0 $0 $0 $0 Reject, scrap, & military sales 70,313 77,344 85,078 93, , ,265 One-time benefit Ongoing duty deferral 374, , , , ,665 2,283,689 Merchandise Processing Fee savings 407, , , , ,031 2,489,538 Total FTZ Benefits $852,155 $937,371 $1,031,108 $1,134,218 $1,247,640 $5,202,491 FTZ-RELATED EXPENSES Internal FTZ Operation Expenses $185,000 $190,550 $196,267 $202,154 $208,219 $982,190 Grantee fees 25,000 25,750 26,523 27,318 28, ,728 TOTAL FTZ-RELATED EXPENSES $210,000 $216,300 $222,789 $229,473 $236,357 $1,114,919 NET FOREIGN-TRADE ZONE BENEFITS $642,155 $721,071 $808,319 $904,746 $1,011,283 $4,087,573 1 Export benefits to Canada and/or Mexico subject to applicable free trade agreements. Totals may vary, due to rounding. Application and activation expense $110,000 2 One-time benefit available after 9 weeks $9,351,563 This is a preliminary analysis which is only as accurate as the assumptions used to generate the following results. The analysis should not be relied upon until the assumptions, calculations, and results contained herein have been verified.

23 Cost Benefit Analysis Cost/benefit studies are essential. Accurate company-specific information is key to good decision-making. Be aware of limitations: special commodity issues Specific FTZ Benefits to Evaluate MPF savings Broker fee savings Flexibility through direct delivery and weekly entry processes. 23

24 OPERATIONS

25 Activities Performed in an FTZ 25

26 Inventory Control and Record Keeping System 26

27 Movements in and out of an FTZ 27

28 28 Operational Challenges Setting up your system CBP Converting inventory movements (ERP/WMS) into FTZ transactions Meet early in process and get to know the officers in your port Process for out of process Brokers/Carriers PGA s - Partner Governmental Agencies Internal changes and processes

29 WHAT YOU NEED TO KNOW

30 30 What you need know... Ask questions It is in the best interest of your company that you completely understand the journey you are embarking on Network Trade Conferences (like this one) CBP Utilize your brokers and carriers Other FTZ s in your area

31 31 What you need know... It s all about you Choose Consultants/Service Providers that are familiar with your situation:» Products, geographical location, other governmental agencies you will interface with» Transparency Ask for references AND speak to them» Develop specific questions regarding: Project timing, budget, good/bad, expertise/knowledge, resource allocation, and support.

32 32 What you need know... Corporate responsibility It takes a village. Communication Training, training, training

33 Q&A 33

34 Jodi Earle Trey Boring Liz Connell x

35 35