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Foreign Trade Zones: Growing With the Flow

Ship and Truck

By Richard Knee 2015-05-25 12:08:13

(Article originally published in Mar/Apr 2015 edition.)

As global trade grows, so too does the popularity of Foreign Trade Zones.

Foreign Trade Zone 283 is brand new as is its host port, Cates Landing, on the Mississippi River near Tiptonville in western Tennessee. So it’s probably no surprise that it has only one client. Nor should it be a surprise when it soon begins to grow, mirroring what is happening across much of the country.

FTZs are designated areas where companies can import and re-export goods duty-free. They are sometimes referred to as Free Trade Zones. More than 200 U.S. communities had FTZs as of 2013, according to statistics provided by Gina Barro, Business Development Manager at the Port of Long Beach. They employed some 340,000 people and handled more than $640 billion in merchandise. Sixty applications were pending for new zones, subzones and expansions in the 50 states and Puerto Rico.

Advantages and Priorities

Marianne Rowden, President and CEO of the American Association of Exporters and Importers (AAEI), said FTZs offer a number of advantages and Congress’s failure to address certain trade-related issues including duty drawback, the Generalized System of Preferences and trade agreements has made them even more popular. The Washington-based AAEI advocates for the U.S. trade community on Capitol Hill and before international forums such as the World Trade Organization.

In her State of the Association address last December, Rowden listed simplifying and modernizing duty drawback processing as the group’s top priority. The drawback program allows companies to receive at least a partial duty refund on goods imported and re-exported but not routed through an FTZ. But it’s a complex, paper-based process, and many companies “are not getting a refund of their duty when they re-export products,” Rowden noted. “As a result, fewer and fewer companies use it.”

A second issue concerns the Generalized System of Preferences (GSP). A list of certain products eligible for duty-free entry under the GSP expired two years ago, and Congress has failed in its last two sessions to pass a bill that would restore their eligibility.

Pharmaceuticals, autos and petroleum account for the biggest chunks of business at FTZs, although the mix can vary from port to port. At FTZ 202 in Los Angeles, for instance, refined oil products are the highest-volume and highest-value movers. At FTZ 50 in neighboring Long Beach, the highest-value categories are consumer products, textiles, footwear, leather goods and consumer electronics, all from China. Los Angeles and Long Beach are, respectively, the nation’s busiest and second-busiest container ports.

Pharmaceuticals have a tough time entering the U.S. directly because of strict controls imposed by the U.S. Food and Drug Administration. The FDA and most other regulatory agencies do not have oversight of goods brought into FTZs and re-exported. The absence of oversight and certain other advantages, notably on the cash-flow and supply-chain side, make the zones highly attractive. Companies can let products “sit” in FTZs indefinitely, putting them to use as needed, and the goods are not only duty-free but also exempt from inventory tax as long as they’re in the zones.

Case Studies

Cates Landing’s FTZ has multiple sites, but the only active one was built from scratch on port land abutting a 9,000-foot channel and a berth of 300 feet, said Riley Higby, Senior Manager of Client Development for Informa Economics, which provides business consulting services to the port authority. The site features 160,000 square feet of near-dock yard space and a 37,000-square-foot transit shed that can be partitioned, offering flexibility.

No specific expansion is on the horizon at the moment. “Other sites will see development on an as-needed basis,” Higby noted. Meantime, the port authority continues to explore opportunities for container-on-barge, bulk shipments and industrial and manufacturing equipment.

Long Beach’s FTZ 50 covers most of Los Angeles County, all of Orange County to the south and western San Bernardino County to the east. Its seventeen usage-driven sites and subzones range in size from less than an acre to 1,000 acres. Most are warehouse and distribution facilities. Two include oil refineries, and some produce aerospace components and electronic parts and equipment. The FTZ employs about 4,500 people and took in $3.1 billion worth of goods in 2013 versus $2.2 billion in 2012. Between eight and 10 new businesses are moving through the FTZ application and activation process.

In neighboring Los Angeles, port officials currently have no plans to expand FTZ 202. The zone comprises 5,400 acres of port property including warehousing facilities; more than 20 general-purpose sites near the port as well as in Orange, San Bernardino, Riverside and Kern counties; and four subzones in the Los Angeles City communities of Wilmington and Northridge and the Los Angeles County cities of Carson and El Segundo. The FTZ in 2013 served 173 companies employing 1,128 people at the general-purpose sites and 2,209 at three of the subzones and received just under $6.52 billion worth of merchandise.

At the Port of Stockton in central California’s San Joaquin Valley, FTZ 231 could add two sites to the current six if the U.S. Bureau of Customs and Border Protection approves FTZ status for 5.11 Tactical’s facilities in nearby Lathrop and Modesto, said Steve Escobar, the port authority’s Deputy Director of Real Estate and Port Development. 5.11 Tactical makes outdoor clothing and gear. Clients at the existing sites are Prologis, an industrial real estate owner, operator and developer; the automaker BMW; the household goods retailer Crate and Barrel; and Medline Industries, Inc., a manufacturer of health products and equipment. The FTZ handled about $1.1 billion worth of goods in 2013.

FTZ 64 in Jacksonville, Florida comprises nearly 900 “activated” acres among eight counties with sites occupying anywhere from 10 to 75 acres, said Lisa Diaz, FTZ Manager for the port authority. The sites have dry and freezer storage and distribution facilities, and their activities include food and auto processing. Aside from food and autos, clients include a number of retailers in areas like handbags and accessories. The FTZ contributes significantly to the 130,000 jobs that Jaxport’s activities support.

Farther south along Florida’s Atlantic Coast, Port Canaveral is undergoing an extensive expansion of cargo facilities including the construction of a 40-acre container terminal. According to spokeswoman Rosalind Harvey, the new expansion “will spawn a demand in FTZ-related facilities and services as distribution and manufacturing companies migrate to the Brevard County area to expand services and meet new demand.”

Port Canaveral’s FTZ 136, covering Brevard County, generates about 60 jobs and comprises magnet sites at the port authority complex and in a number of neighboring areas. Liquid bulk petroleum products account for the FTZ’s highest-volume traffic and represent about 45 percent of the port’s annual volume. Electrical machinery and equipment from Europe are its second-largest product category.

The port authority has also acquired a 270-acre site in Cocoa where it anticipates developing an international commerce and distribution center that will include FTZ designation. In addition, it has entered into a lease agreement with Flagler Global Logistics for 246,240 square feet in the Titusville Logistics Center, which will also receive FTZ designation to accommodate international commerce and manufacturing activities.

“In-Bond” Movements

Duty-free treatment doesn’t always require routing through an FTZ. The Port of Vancouver, Washington, for instance, doesn’t have an FTZ but offers bonded storage on a per-project basis and assistance in arranging in-bond movements into Canada. Cargoes moving in bond are not subject to duty, port authority spokeswoman Katie Odem said, because they are merely transiting the U.S. and are not intended for domestic consumption. – MarEx  

Richard Knee is a San Francisco-based writer. This is his first appearance in the magazine.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.