Executive Summary
The Foreign Trade Zone (FTZ) Program provides numerous logistical and financial advantages unlike any other Federal Program available to the trade industry. The goal of this analysis is to create a unique and realistic profile of direct and indirect savings by outlining the specific financial and logistical benefits realized by Tri-Link client Fremont Electronics.
The FTZ Program is a private / public partnership that separates its benefits and investments from other programs such as bonded warehouses and container freight stations. Unlike other federal programs, there are investments required from the trade to participate in this program. This analysis identifies and compares the anticipated costs to maintain participation in the FTZ Program. It is our goal to paint a clear picture of whether participation of the FTZ Program is right for your company at this time.
Financial Benefits
Based on the information provided by Fremont Electronics, both in the Tri-Link Feasibility Questionnaire and other company statistics, we conclude that immediate financial advantages will be realized from the “Duty Elimination” and “Weekly Entry” aspects of the Foreign Trade Zone Program.
The Duty/Tax Elimination benefit allows for a savings in duties/taxes that would otherwise have been paid on product destined for export. This includes product from your facility which may be transferred to duty free retail operations anywhere in the world. Duty Elimination eliminates the need for drawback and associated costs. Since the duties/taxes are never incurred upon importation, this process and fee is eliminated upon exportation. The export value of Fremont Electronics is estimated at 3% of the annual volume. The savings amount is estimated at $1,250,000 annually.
The Weekly Entry benefit allows for your company to file one entry per week with unlimited outbound withdrawals. This benefit capitalizes on the MPF or Merchandise Processing Fee being minimized significantly by implementing its cap of $485. While you are allowed to see significant financial savings, you also enjoy no operational delays to ensure the “Just in Time” concept. Additionally, this benefit has the potential to minimize brokerage fees. Your annual savings is estimated at $154,908 annually.
There are numerous other financial advantages with smaller savings that include duty deferral savings, harbor maintenance savings, shrinkage prevention, etc. The Feasibility Questionnaire analysis identifies a financial savings for Fremont Electronics of $1,455,140.70 annually.
Logistical Savings
For many businesses in the industry, logistical advantages can offer savings that outweigh financial benefits. For the Fremont Electronics business model, building inventory to meet the “Just in Time” concept is essential. The FTZ Program eliminates the Customs process out of the port of entry and into your FTZ. The coordination and processing time normally experienced by your Customs Broker can be avoided under the FTZ. As a result, the ability to move cargo to your facility immediately and the 1-2 days in logistical reserves is even more beneficial. Filing automated in-bond documents and admissions prior to arrival creates a seamless process in a paperless environment. The consolidated supply chain model will create additional savings, again, with no operational impact.
The avoidance of compliance exams will also save time and money by allowing your product to be received faster and reworked with time to spare. The ability to manipulate your product through quality control inspections, relabeling or repackaging creates further advantages as these operations can be conducted without the oversight of Customs prior to the payment of duties/taxes for Customs clearance. These logistical savings will offer an indirect financial savings in operational costs and ease of conducting business by streamlining inventory control and global supply chain management.
Conclusion
Financially, we conservatively anticipate a savings of $1,455,140.70 per year. Based on a three-year outlook there would be an anticipated savings of $4,365,422.10. A five-year outlook would anticipate a significant savings of $7,275,703.50. It is our opinion the logistical benefits can indirectly match this savings by improving logistical solutions to the Fremont Electronics facility, consolidating multiple global distribution operations and create a business friendly environment for delivery to clients. While the investment may appear substantial, it is small in comparison to the peace of mind it offers and the expedient service it provides.