Category Archives: Global Trade

Import Duty Reduction: Not Just for Large MultiNationals Anymore

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CFO recently had a great article on how small and midsize business can use the same customs-duty strategies large multi-nationals use to save a hefty chunk of change in a recent provacatively titled article. As larger companies well versed in global trade know, import duties, unlike income tax rates, can change dramatically depending on the way goods are described or the way the products are packaged and assembled. The article gives the classic case of microscopes used for surgery. In the early 1990s, they were lumped in with laboratory microscopes, which meant the device carried a 7.2% import duty. However, once manufacturers argued that the device was a surgical instrument, it became duty free. In other words, intended used can often be used to recategorize an item into a lower duty bracket. Another example is a woman’s cotton T-shirt. As sleepware, it carries an 8.5% duty, as swimwear, it carries a 14.9% duty.

Also, retail sets can sometimes carry a lower effective duty than the individual items they contain, and sometimes carry a higher effective duty. Thus, if you plan to combine the items into a set, you should do the import math and determine if it’s more cost effective to assemble the items before, or after, import.

Another great piece of advice from the article is keeping full documentation of the entire trade cycle. If you use a distributor (to purchase goods from a manufacturer on your behalf), that distributor will apply a markup to the goods. However, if you retain the documentation necessary to show the purchase by the distributor was an arms-length purchase and that the goods were clearly destined for the US, you can have the import duty assessed at the cost to the distributor, not the cost to you, which could save you 10% to 20% of the duty cost.

And don’t forget about how FTZs help U.S. companies save millions during tough economic times.

Nearshoring is Finally in Vogue

A recent brief on Purchasing.com noted that, according to a quarterly report on supply chain risk from AMR Research, “buyers are continuing to increase near-shoring as a risk management strategy”. Specifically, AMR Research found that buyers will increase their nearshore sourcing and manufacturing activities by a ration of 5 to 1 (with Mexico, Canada, and Brazil in the lead).

Hear, hear! I’ve always been for nearshore sourcing and home country sourcing not only because it decreases risks, but because it increases competitive advantage manufacturing flexibility while decreasing transportation costs and pollution. Where you see a labor cost savings opportunity, I see an opportunity for innovation. Given that the cost of raw materials and equipment is about the same globally these days, and that transportation costs go through the roof in times of high demand, there’s no reason you shouldn’t be able to make it affordably locally, or at least on the same side of the ocean. And if you say “the labor cost is too high” I say “there’s an opportunity for innovation and automation” … and if you’re the first to find it, think of the huge competitive advantage you’ll have.

When it comes right down to it, the only times it makes sense to source globally are when you have a (relatively) rare raw material that can only be obtained from a few locations, when you need to source out-of-season food that can’t be produced affordably (in both financial and environmental terms) in green-houses, or a good that requires proprietary IP to manufacture that is only held by a small number of suppliers in a certain location. Otherwise, find a way to affordably source it nearshore and you’ll win in the long run.

FTZs Help U.S. Companies Save Millions During Tough Economic Times

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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)

The New Global Sourcing Professional

A recent article in Global Services had an interesting take on “The Rise of the Global Sourcing Professional”. According to the article, experienced IT professionals have a unique opportunity to transition into global sourcing professionals due to their role in the evolution of outsourcing in its infancy to a mature industry.

The article, which starts by noting that companies need to move beyond the traditional outsourcing model if they want to continue to reduce costs, indicates that the next round of cost savings will only be realized if a high level of productivity between vendors and employees is reached. Furthermore, this will only happen if global sourcing professionals are able to help management understand their unique issues around outsourcing and build a new organization that focuses on communication and collaboration.

In this brave new world, experienced IT professionals have a unique opportunity to transition into the role of Global Sourcing Professional as they have the technical knowledge, a keen awareness of business processes, and an understanding of system and automation infrastructures. A GSP needs to have a full understanding of the company’s culture, how they align with the vendor of choice, and recognize opportunities … and IT professionals face these issues every day. Furthermore, the best GSPs seek out new ideas and processes, and this is what drives IT professionals. It’s something to think about.

Entry Visibility: Your Trade Visibility Success Depends On It

A little over a month ago, I told you that You Need Trade Visibility, which helps you track your products from the time they leave a supplier’s warehouse until the time they reach your end customer, because it helps you to:

  • understand the factors that impact costs, cycle times, and service levels,
  • identify minor issues before they turn into major problems,
  • enforce compliance, and, most importantly,
  • prevent millions of dollars from being flushed down the drain.

And to highlight the last point, I pointed out how

  • A Global Data Mining study across 5 companies with 3 Billion to 31 Billion in revenue found over 150 Million in duty savings alone.
  • Most companies spend hundreds of thousands of dollars in manual filing costs a year for shipments that can be processed for pennies by global trade management solutions.
  • Most trade cycles are 65% longer than they need to be. Each day “in transit” costs roughly 0.5% of the total shipment value and costs an average company 5% of the value of an average shipment.

A key component of trade visibility is entry visibility. An entry visibility solution allows a company to manage the trade compliance process associated with the import of goods that starts when they leave a foreign supplier’s warehouse and ends when they reach their (initial) destination. It ensures that all the regulatory, compliance, and documentation requirements are met in an accurate and timely fashion at the lowest possible cost and prevents costly fines and delays.

Accuracy and timeliness are critical because:

  • An average international transaction could require as many as 35 documents across 25 parties complying with over 600 regulations and more than 500 free trade agreements.
  • Most companies are losing millions in overpayments due to misclassifications:
    • U.S. Customs estimates that between $1.5 and $2.3 Billion of the $20 Billion collectively paid by over 300,000 importers is likely an overpayment (due to a misclassification).
    • A recent Aberdeen Study on Global Trade Compliance Priorities found that the wrong duty was paid on 11% of international shipments.
  • Most companies are losing millions through Free Trade Agreement mismanagement.
    • A recent study quoted by Aberdeen found $17 Million in savings through better utilization of trade agreements across five companies.
    • Black and Decker was able to increase its NAFTA savings by 240%, from $3 Million to $7 Million over 4 years through better FTA management.
  • Inefficient administration of customs processes will cost you 7% of total trade value.
    • A United Nations study estimated that lost opportunities end up costing the global economy over $420 billion annually.

That’s why it’s important to implement an Entry Visibility solution, as it will reduce filing costs, enforce compliance, reduce data synchronization complexity across your supply base, generate the proper import packets, and provide the “Reasonable Care” required by the Mod Act. Furthermore, with a SaaS-based entry visibility solution, such as the solution offered by
Integration Point, you can be up and running in a matter of days, auditing every entry, and eliminating costly overpayments due to misclassification errors.

For more information on how Entry Visibility can save you time, money, and compliance headaches, check out Integration Point’s new white-paper on Closing the Loop with Entry Visibility.