The Benefits of Foreign Trade Zones (FTZs) for US Businesses

Foreign trade zones (FTZs) are designated areas near US ports of entry that allow businesses moving goods in and out of the country to benefit from paying reduced or no taxes, fees or customs duties.

In an FTZ, foreign and domestic goods are treated as part of international commerce, outside the jurisdiction of US customs. This allows greater flexibility in the movement of goods and people, streamlined administrative processes, improved cash flow and more efficient trade operations.

If you’re an importer looking to optimize your supply chain and reduce costs, partnering with a 3PL (Third-Party Logistics) provider that operates within an FTZ offers significant advantages. Here are a few foreign trade zone benefits that are worth considering:

Financial benefits of foreign trade zones

Duty deferral

This is where you pay customs duties only when your goods leave an FTZ and enter US commerce. This deferral of duties and tariffs helps improve cash flow as you can hold onto working capital longer.

Duty elimination

With duty elimination, you incur no fees at all when importing goods into an FTZ and then exporting them to another country.

Inverted tariff relief

The benefit allows you to apply a lower duty rate to imported components if the finished product has a lower tariff than the parts it’s made of. For example, if imported car parts have a 5% duty but a car manufactured in an FTZ for sale in the US has a 2% duty, you’re only liable for the 2% duty.

Merchandise processing fee (MPF) reduction

This allows your business to consolidate numerous shipments into a single customs entry. This reduces the total MPF and can lead to significant savings over time.

Operational advantages of FTZs

Streamlined customs processing

Your goods are delivered directly into FTZs, avoiding the need for formal customs clearance and the associated paperwork. Add to this consolidated filing entries (as mentioned above), and the faster processing and release of goods from FTZs, and your business benefits from faster, more efficient and more predictable goods handling.

Inventory control

Thanks to specialized FTZ inventory management systems, businesses have better oversight of imported and domestic goods, improving efficiency and reducing costs.

Quality control

FTZs also provide a real advantage when it comes to quality control, as you can inspect merchandise and, if necessary, return defective goods before paying any duties.

Extended storage

There are no time limitations on storage within an FTZ (unlike in bonded warehouses). This means you can store imported goods for longer periods without incurring taxes or customs duties.

Supply chain flexibility

Just-in-time distribution

This allows your business to hold inventory close to US markets without having to import and pay the associated duties until the goods are needed. It’s a great way to manage inventory more efficiently and align import and production with customer demand.

Value-added activities

Companies can perform certain manufacturing, assembly, testing, and labeling activities within an FTZ, benefitting from reduced or deferred duties and greater flexibility before goods are imported into US commerce.

One-stop shop

Your business can manage multiple stages of its supply chain within an FTZ. Activities such as warehousing, fulfillment, and customs compliance can be performed in a single location, streamlining operations.

By leveraging a specialized 3PL with FTZ expertise, you also benefit from their knowledge of complex customs regulations and FTZ procedures. This allows you to focus on your core business operations while maximizing the duty savings and operational efficiencies that FTZs offer.

Industries that benefit most from FTZ 3PLs

Industries That Benefit Most from FTZ-3PL Partnerships

Certain industries gain exceptional value from foreign trade zone-3PL partnerships due to their specific supply chain characteristics and tariff situations:

Manufacturing & assembly

Many of the foreign trade zone benefits mentioned above apply to the manufacturing and assembly sector, notably:

Duty deferral
Inverted tariffs
Value-added activities
Extended storage
Streamlined customs processing

Consumer goods

The consumer goods industry is a big beneficiary too, with certain categories gaining considerable advantages:

Apparel & footwear: Generally subject to high duty rates (often 15-32%), duty deferral offers significant savings
E-commerce retailers: International returns handling is simplified thanks to FTZs, with useful duty recovery options (more on benefits for e-commerce retailers shortly)
Seasonal businesses: Inventory can be stored duty-free in FTZs during off-seasons
Furniture: Delayed duty is ideal for this sector, in which bulky items need to be stored before being shipped to regional distribution centers
Sporting goods: As with seasonal businesses, inventory for different sporting seasons can be stored without paying duties until needed

The best candidates for FTZ 3PL arrangements typically have one or more of these characteristics:

High-duty products (over 3-5%)
Significant import volumes
Complex international supply chains
A mix of domestic and international distribution
Regular re-exports or returns to foreign vendors
Value-added activities performed after import but before final sale

FTZ benefits for e-commerce retailers

E-commerce retailers face unique challenges in today’s global marketplace. Here’s a deeper look at how foreign trade zone-3PL partnerships can significantly benefit this sector:

Documentation efficiency: FTZs reduce the paperwork and administrative burden associated with duty drawback claims on returns
Global fulfillment hub: You can create a single inventory pool that can fulfill both domestic and international orders without pre-allocating inventory to specific markets
Seasonal inventory management: As touched on, you can import holiday or seasonal merchandise early without incurring immediate duty payments, improving cash flow during critical periods
Flash sale preparation: FTZs enable you to pre-position limited-time offer merchandise without needing to pay duties until the items are sold

Market testing advantages

Risk reduction: You can test new international products in the US market without committing to full duty payments upfront
Easy re-export: If products underperform, you can redirect them to other global markets without incurring US duties
Sample distribution: You can send evaluation samples to influencers or key customers directly from the FTZ thanks to simplified customs procedures

Operational efficiencies

Order fulfillment speed: FTZs allow you to position inventory closer to end consumers, while preserving duty deferral benefits
Cross-border e-commerce: You can create specialized fulfillment operations for international direct-to-consumer shipments
Value-added services: Your company can perform customization, kitting, and bundling activities within the FTZ before shipment

Financial advantages for e-commerce

The advantages here largely reflect the overall financial advantages of FTZs, but differ enough to be worth mentioning:

Improved cash flow: Critical for high-growth e-commerce companies who can defer duty payments until items ship
Reduced customs bond requirements: Weekly entry filings decrease continuous bond requirements
Inventory write-off benefits: Damaged or obsolete inventory can be destroyed under customs supervision without paying duties
Foreign investor appeal: For internationally-backed e-commerce ventures, FTZ operations demonstrate sophisticated supply chain management

For rapidly growing e-commerce retailers with international suppliers and customers, the FTZ-3PL model provides both immediate cost savings and strategic supply chain advantages that can create meaningful competitive differentiation.

Get in touch today

We’ll discuss your specific needs and goals, provide free expert guidance, and if it looks promising, help you formulate a plan to unlock those savings and efficiencies.