Foreign trade zones as the gateway to American markets

Customs tariffs or import and export restrictions are a good benchmark for determining the relationships between countries or communities of nations. Overall, they create a balancing effect, which responds to any interference sensitively, particularly if regulations are tightened or customs tariffs are increased.

The formation of so-called foreign trade zones (FTZs) is an important regulating factor. It is true that customs tariffs are not reduced and customs restrictions are not eliminated for the direct import of certain raw materials, products or product components via an FTZ. However, the story can be very different if they are subject to further processing or are complemented by other components. The role that FTZs can play when re-exporting goods is just as important. The storage opportunities that are available in foreign trade zones can be used to transport goods to other countries in the region without having to pay the import duties that would accumulate otherwise.

The City of Miami in Florida is used by exporters from Europe and Asia as well as US-based customers as the entrance gateway for distributing goods in the Latin American region. The Rhenus Group announced that it had taken over the Freight Logistics Group, which has its headquarters in Miami, Florida, in April 2019. After taking over the Rodair Group based in Toronto, Canada, at the beginning of that year and the Brazilian customs clearance specialist Piramide SeaAir Comercio Exterior in the previous year, this marked another milestone in expanding the logistics group’s presence in the entire American region.

Alongside its high-tech and IT expertise, Freight Logistics has another significant advantage – its ideal strategic location. The company has its own consolidation centre with a direct link to the international airport and seaport at its headquarters in Miami. The firm is also licensed or has accreditation as an airfreight forwarder (with IATA accreditation), as a freight forwarder without its own shipping operations (NVOCC) and as a bonded warehouse and freight screening company (CCSF).

Rhenus pressed ahead with the construction of a warehouse measuring almost 16,000 square metres to systematically expand the business site. The ‘Class A warehouse’ – primarily constructed to handle vertical solutions for entertainment electronics, high-tech items, high-end fashion and the retail sector – was finally opened in March 2020. Alongside this, the U.S. Customs and Border Protection Department (CBP) approved the application to turn the new Rhenus headquarters for the North and South American region into a foreign trade zone (FTZ).

Now that Rhenus has authorisation to operate an FTZ, it can make use of a whole range of advantages for its customers outside the USA. Importing and exporting goods to/from FTZ territories is generally exempt from customs tariffs. Similar to what happens with customs bonded warehouses, such as the one in Miami, Rhenus customers with a strong regional presence now have the opportunity to store their goods closer to their own regional customers without having to pay the customs tariffs that are normally due. This means that they benefit from a significant increase in delivery speeds, e.g. if spare parts are stored there and can be quickly shipped onwards from there. Even more important is the cost-savings aspect since the customer’s money is not tied up in duty payments.

Companies also have the opportunity of storing goods on US soil for an unlimited period – e.g. even if they do not meet the specific requirements of Partner Government Agencies, such as the Environmental Protection Agency (EPA), the Federal Communications Commission (FCC) or the Food and Drug Administration (FDA).

Goods that are imported, stored and later exported outside the United States are not subject to the payment of customs duties and taxes. In addition, cargo can be stored in an FTZ until inventory is depleted without any time restrictions. The key factor here is that the products are not being used or consumed in the USA. But a free trade zone has another benefit: in contrast to bonded warehouses, goods can be put into storage there without any time pressure – i.e. without any time-based restrictions at all.

In addition to the possibility of re-exporting goods without paying any customs duty, some US foreign trade zones offer the opportunity of so-called ‘inverted tariffs’. These special tariffs can only be used if the raw materials or product components are assigned to a different class of goods after further processing work and lower customs tariffs apply to this class. Other possible benefits include making use of what is possibly more cost-efficient final assembly procedures in the USA.

The final decision about using foreign trade zones for global exporters boils down to weighing up their costs – and in many cases, this is a worthwhile process. The total import, processing and warehouse fees are set off against the costs that are saved, which could be incurred to settle customs fees and other costs associated with them. It is often the volume of the freight or of the delivery that tips the scales, for even a reduction in customs fees of just a few percentage points can mount up and provide very relevant cost savings if the volume of freight involved is large.

Further processing work performed in the foreign trade zone therefore not only leads to possibly cheaper customs tariffs; the work often pays off by introducing process stages that are performed more simply or more cheaply at the local site. These include, for example, labelling processes, repackaging or providing new packaging for products or even modifications to establish connections or cable links that are standardised features in the USA.

There are also other advantages that can be used, in contrast to customs bonded warehouses, for instance. Patricia Junco, Brokerage Manager at Rhenus Customs Brokerage in Miami, says, ‘FTZ customers benefit from weekly entry summary filing, which allows importers to release their cargo and file one entry summary at the end of the zone week. They can thus save on customs processing fees and merchandise processing fees due to customs. We can also decrease the importers’ administrative burden by reporting and arranging payment for harbour maintenance fees due to customs on a quarterly basis.’