Free trade zones (FTZs, also called Foreign Trade Zones) are a powerful tool for businesses looking to optimize their supply chain, solve cash flow and customs issues, and remain competitive in today’s global economy. Established under the Foreign-Trade Zones Act of 1934, FTZs allow companies to reduce costs, streamline operations, and improve efficiency. Here’s how they work and why they’re essential for modern logistics.
What Is a Free Trade Zone?
A free trade zone is a designated area, usually near U.S. Customs and Border Protection (CBP) ports of entry, where goods can be imported, processed, and re-exported without customs duties or delays. These zones provide businesses with greater flexibility in handling merchandise and reduce the overall cost of moving goods through the supply chain.
There are around 350 active FTZ production operations currently in place across the U.S., holding more than $767 billion in shipments – so no matter where in the country you’re importing to, arranging access to use a FTZ is possible.
How FTZs Help Optimize Supply Chains
By operating within a free trade zone, businesses gain access to several benefits that directly impact their supply chain efficiency:
Duty Deferral: Pay customs duties only when goods enter the U.S. market, improving cash flow.
Duty Exemption: Avoid duties altogether on goods re-exported from the zone.
Reduced Fees: Lower merchandise processing fees can significantly cut costs.
Quota Management: Store goods in the FTZ until import quotas reopen, avoiding disruptions.
Streamlined Processes: Simplified customs procedures reduce time and administrative burdens.
Activities Allowed in Free Trade Zones
Businesses operating in an FTZ can perform various activities to add value to their goods, including:
Assembly
Packaging and relabeling
Testing and repairs
Storage and warehousing
Manufacturing (with FTZ Board approval)
Retail trade, however, is not permitted.
Success Stories of FTZs in Action
FTZs are widely used across the U.S., providing measurable benefits:
Texas: Auto manufacturers store vehicles duty-free until delivery, saving costs and creating jobs.
Port of Seattle: Clothing manufacturer Tommy Bahama centralized operations in an FTZ, reducing expenses and boosting local employment.
California: Electronics companies assemble and export products without incurring duties.
Getting Started with a Free Trade Zone
It’s easy for for businesses to join existing FTZs quickly, offering flexibility through magnet and usage-driven sites. If you think it’s the right thing for your business, just ask your freight forwarder/customs broker and they will arrange that for you.
At Simple Forwarding, we often recommend the use of Foreign-Trade Zones (FTZs) to clients who may not realize this option is available. FTZs have proven to be a valuable resource for our clients in various situations.
For example, one client faced a policy change while their shipment was in transit. By the time it arrived, new labeling requirements had been introduced. Instead of risking the shipment being seized at customs, we redirected it to an FTZ for relabeling. This solution ensured compliance and avoided delays.
In another case, a client encountered unexpectedly high tariffs on a shipment due to sudden policy changes. We advised storing the goods in an FTZ and withdrawing them incrementally as needed. This approach minimized the upfront customs costs and helped the client manage cash flow more effectively.
FTZs can be an invaluable tool in navigating the complexities of international trade. If you’re facing unexpected challenges, they might just be the solution your business needs.
Optimize Your Supply Chain Today
Leveraging a free trade zone to optimize your supply chain can significantly reduce costs, improve efficiency, and provide a competitive edge.
Actionable Tip: Assess your import/export activities to determine if FTZ benefits align with your business needs. Partner with logistics experts to explore existing zones and take advantage of FTZ operations.
For more insights on FTZs or optimizing your supply chain, schedule a call with us today.