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Today’s guest post is from Matt Gersper, founder and president of Global Data Mining.

While no one likes difficult and tough economic down cycles, periods like the one we’re in now serve the useful purpose of helping companies increase their focus on business process improvement — for example, by exposing inadequate global trade processes in order to improve them. Global trade, despite the current downturn, is in a long-term growth cycle. Combined U.S. imports and exports increased from under 100 billion dollars in 1968 to nearly 3,500 billion dollars in 2008 — with almost half that total growth occurring in the last decade.

Given this reality, it’s critical that business executives and global trade directors leverage current economic challenges to create fast and significant international trade process improvements, carefully investing limited capital in those areas where it can get the biggest bang for the buck. One excellent way to do this is by taking advantage of the U.S. Foreign-Trade Zone (FTZ) program.

Analyze Your Trade Data

“Foreign-Trade Zones can save U.S. importers millions of dollars and will often improve the speed of the supply chain,” explains Tommy Berry, President and CEO of PointTrade Services. Berry has been involved in more than 150 FTZ sites in 29 states, helping his clients save hundreds of millions of dollars over the past 20 years.

Is your company a candidate for such savings? The first step in finding out is to get hold of your own trade data. Many companies don’t realize they can order a data file with a complete five-year history of all their U.S. import transactions for $500 or less. The necessary forms can be downloaded for free at the Global Data Mining (GDM). Companies like GDM can then analyze your data to calculate the potential savings you would have realized had your company operated in an FTZ over the past year.

The trade data experts at Global Data Mining have analyzed more than three million U.S. import entries that collectively represent over $159 billion in import value — and have identified billions of dollars in potential savings for their clients. Using a repository of trade data analytics that is not limited to FTZs, they have developed nearly 60 unique reports that can analyze your trade data, quantify opportunities, identify required resources (both internal and external), quantify costs and calculate the return on investment (ROI).

Making the FTZ Business Case

What kind of savings are we talking about? Figure 1 (below) illustrates the projected savings realized from utilizing an FTZ for a company with $100 million in annual imports. Estimated savings in the first year alone in this example exceed $1,500,000. This total comes from the following: broker fee savings: $129,800; merchandise processing fee (MPF) savings: $274,780; duty deferral savings: $900,000; and re-export savings: $250,000.

On top of that, ongoing annual savings are estimated at nearly $700,000 without even counting potential savings from inverted tariffs; duty elimination on waste, scrap, and yield loss; security and insurance savings, and inventory tax savings.

Figure 2 (below) illustrates the estimated costs and ROI. “In the first year,” says Berry, “this company would need to invest $336,500 and $162,000 a year after that.” “However,” he adds, “the ROI on this investment would amount to $1,218,080 in the first year and $528,580 annually after that.” That’s a first year return of $3.62 for every $1 invested in setting up an FTZ. “Your CFO is not seeing deals like this every day!” notes Berry.

Building the Database

One key to gaining the full benefits of an FTZ — or any other international trade process improvement — is making certain that you have effective parts master database management. That means answering questions like: What data is required? What data currently exists? Who “owns” the different data elements? Where does the data reside today? In what format? Where should the data reside for the future solution? How will it be validated? How will it be integrated? How will it be updated?

Executive Leadership

To survive in this challenging economic environment, business executives and global trade directors need to upgrade and optimize inefficient international trade processes. Doing so will reduce duty spend, accelerate supply chain speed, improve compliance, mitigate risk and improve executive visibility. Global trade remains among the last frontiers of corporate process improvement. A one dollar investment in this area can return $5, $10 or even $20. Imagine the impact returns of this magnitude could have on your 2009 and 2010 business plans.

Thanks, Matt.

Figure 1. Analyzing the Data: Direct Financial Benefits
Fact Pattern	Assumptions	1st Year	On-going
Regular 1529 Entries	1,500 entries
Estimated average broker fee per entry: $90	1,500 x $90	$135,000	$135,000
	52 x $100 (with weekly entry)	($5,200)	($5,200)
	Broker Fee Savings	$129,800	$129,800
Estimated average MPF per entry: $200	1,500 x $200	$300,000	$300,000
	52 x $485 (with weekly entry)	($25,220)	($25,220)
	MPF Savings	$274,780	$274,780
Imports: estimated $100 million
Average Inventory: estimated $36 million			Cost of Capital: 4%
Average Duty Rate: 2.5%	$36 million x 2.5%	$900,000	$36,000
Re-export: estimated $10 million
Re-exports average 10% of total imports	$10 million x 2.5%	$250,000	$250,000
Estimated 1st year savings in an FTZ		$1,554,580
Recurring annual savings estimate    (assuming same volumes)			$690,580
(Source: Global Data Mining)

Figure 2. Making the Business Case:   Estimate Costs to Create True Return on Investment
Fact Pattern	Assumptions	1st Year	On-going
Estimated Set Up Costs:
FTZ Application-PTI Consulting Fee	Application/activation	$100,000
Continued FTZ/Customs consulting			$20,000
FTZ Board Filing Fee		$6,500
FTZ software license/installation		$100,000
Maintenance fee yearly			$10,000
Ongoing automation FTZ/Customs system			$15,000
FTZ Administrative Staffing:
In-house	2 people
FTZ administrative management services (PTI)		$25,000	$100,000
FTZ Grantee Fees		(TBD)	(TBD)
(one-time costs + annual fee)
Miscellaneous travel expenses, etc.
Mass Class TM Trade Data Services		$100,000	$15,000
CI Alerts		$2,500	$1,000
TI Alerts		$2,500	$1,000
Costs/Expenses		$336,500	$162,000
Estimated Net FTZ Savings vs. non FTZ environment		$1,218,080 ($1,554,580 – $336,500;   see Figure 1)	$528,580 ($690,580 – $162,000;   see Figure 1)
(Source: Global Data Mining)