Foreign Trade Zones in the Logistics Industry A Value Add to our Customers Supply Chains JAXPORT FTZ Workshop 23 August 2011 Ted Henderson SVP Global Trade Services CEVA Logistics
Foreign Trade Zones in the Logistics Industry Why, what is the value? Our customers drive the global logistics services we provide Our customers are looking for solutions that are low cost and high value They look to us as the experts to take cost out of their supply chain - Direct costs reduce, defer, or eliminate - Indirect costs time in transit, inventory, etc Foreign Trade Zones are a tool that helps us drive out cost and add value - Stand alone operation or as part of global supply chain service FTZ fit within our existing infrastructure model - An FTZ can be a parcel of land, a building, or even a part of a building FTZ fit within our existing operational model - Goods in an FTZ can be: Manufactured, Stored, Repackaged, Repaired, Assembled, Tested or Inspected, or just cross docked FTZ fit within our existing trade compliance model 2
Foreign Trade Zones in the Logistics Industry Some things to consider before you jump in There is a cost to setting up and running a FTZ It takes specific expertise but there is plenty of help out there - Consultants, attorneys, port authorities and associations Securing approvals from FTZ board and US CBP takes time Commitment of dedicated FTZ personnel (compliance, management, sales) Effective compliant FTZ management requires good FTZ specific software - Inventory control, recordkeeping, process flow FTZ use means electronic filings with US Customs Additional regulatory responsibility and interaction with US CBP Inconsistent approaches between FTZ boards and US CBP in different ports - This is improving thanks to work by NAFTZ and US CBP HQ An FTZ may not always make sense for all customers - Do the analysis before you make the commitment 3
Foreign Trade Zones in the Logistics Industry A Review of the Financial Benefits of using an FTZ Duty/Fee/Tax Deferral - Goods are admitted to an FTZ and duty is not paid until the goods are withdrawn from the zone and formally entered into the US - No minimum or maximum time limits for goods in an FTZ Duty/Fee/Tax Elimination - Goods admitted to an FTZ and later exported out of the US from the FTZ are not subject to duty payment Duty/Fee/Tax Reduction - Typical case to reduce duty via FTZ is the inversion in a manufacturing scenario - But, there is potential for significant reduction in MPF through Weekly Entry process for goods simply processed through an FTZ - Certain articles excluded from Weekly Entry clearance, such as Quota 4
What really caught our attention as a logistics provider... Merchandise Processing Fee Reduction The Trade and Development Act extended Weekly Entry process to all FTZ Under Weekly Entry process, multiple shipments are admitted to an FTZ A Weekly Estimate entry is filed with CBP for all goods to be potentially removed from the FTZ in a single week Same goods previously admitted to the FTZ are removed on multiple shipments in accordance with Weekly Estimate entry At week end, a single Weekly Entry summary is filed with CBP and duty paid for all merchandise entered into the US from the FTZ For example: - Under standard entry process, 5 high value shipments a week have a capped MPF of $485 per entry equaling a total of $2,425 per week in MPF - Under the FTZ Weekly entry scenario with one entry, MPF is capped at $485 - Same freight volume moving into the US with MPF savings of $1,940 per week 5
The CEVA Logistics FTZ Case Study Taking Inventory and Deploying New Strategy Long History of FTZ Operation in One Location - Legacy General Purpose FTZ in DFW Low Utilization, Antiquated Software, No Corporate Focus Analyzed Situation Recognized Opportunity Made Business Decision to Engage in FTZ Market - Initiated Prior to 09 Economic Situation Established New CEVA FTZ Strategy Three GP FTZ co located in major CEVA Gateway Stations - DFW plus ORD and LAX 6
First Step A New Approach for an Old FTZ An Alternative Solution for an Existing Customer Hi Tech Importer With US Customs Compliance Issues - High Volume of Returns - Customs Concern About C/O Reporting and ADD issues FTZ Program Established in DFW for C/O Prior to Import into US All Returns Admitted into the FTZ Parts Physically Reviewed - Part Number Verified Against Invoice - C/O Confirmed Zone Withdrawal Completed After All Parts Confirmed Positive US Customs Compliance Rating for Importer 7
Next Steps Expansion to a New Larger DC Project in a New FTZ EU Based Commercial Printing Equipment Manufacturer Spare Parts and Consumables Needs Primarily Serviced by DE Parts Center with small US and HK Warehouses DE Warehouse Service was slow and costly $100M USD in US imports annually Introduction of Americas DC in ORD FTZ - 24/7 Availability of Parts in US, CA and Latin America - Faster Response Times and Increased Customer Satisfaction - Reduced Inventory Carrying Costs - Reduced Duties/Fees through Weekly Entry - Reduced Duties/Fees for Parts moving outside of US - Enhanced US Trade Compliance Program (C TPAT best practice) 8
Next Steps High Value High Volume High Tech Imports in a new FTZ Introduction of Cross Dock Import Operations in LAX FTZ - Focus on High tech customers with high volume imports ex Asia - Zero duty rate on high tech imports - But still subject to MPF (typical shipment subject to $485 cap) - These importers are paying 100K 2M USD annually in MPF Inbound freight is moved directly to our FTZ from the airport Ongoing process of FTZ admission, acceptance and outbound staging Freight cleared for US import under Weekly Entry process Even with additional one off entries, MPF drops to $50K annually An immediate savings for our US import customers and a compelling sales tool for our those importers who are not our customers Plus, several pieces of pending legislation may double MPF percentages 9
Taking it to our Customers Aviation OEM and After Market Parts DC 3PL Management of New FTZ program for Customer Aftermarket Supplier for Aviation, Defense & Marine - New parts, Aftermarket operations, Refurbishment 225 Manufacturers, Over 10,000 unique parts $200M USD in imports annually, 60% exported - No Duty Drawback or Bonded Warehouse Programs Daily outbound shipments, 200+ small package exports FTZ program integration with internal ERP Platform Improved Trade Compliance processes through FTZ Reduced Duty/Fee Costs, Optimized Inventory Taxes Improved visibility, Enhanced supplier compliance and Customer responsiveness (Urgent AOG to Routine maintenance) 10
In Conclusion CEVA recognizes that US Foreign Trade Zones offer a mechanism to deliver savings and velocity to our customer s supply chains FTZ are now an Integral Part of our total Global Supply Chain Solutions Innovative approach to taking cost out of a supply chain - Particularly compelling in today s economic environment - Duty Deferral for goods held in an FTZ until sale and entry into US - Duty Reduction with annual cap on MPF at $25,220 under Weekly Entry process - Duty Elimination for goods that will exported out of the US - Allows us to provide solution without impacting our slim margins Foreign Trade Zones provide Logistics Service Providers major opportunities to: - Reduce Cost - Increase Velocity - Increase Compliance - And Drive Customer Satisfaction for our customers. 11