US shippers are increasingly turning to foreign trade zones (FTZs) as a potential solution to offset the cost of Trump administration tariffs on high-value goods and merchandise. However, limited storage capacity and administrative complexity make FTZs far from a guaranteed fix.
FTZs are specially designated domestic areas, usually near a port of entry, where high-value commodities can be stored before they officially enter the US, allowing shippers to defer the payment of duties and tariffs. These zones, overseen by US Customs and Border Protection (CBP), can also be used for processing, assembly, or light manufacturing of high-value merchandise.
Since the implementation of tariffs by President Donald Trump in April, interest in FTZs has surged. According to consulting firm IMS Worldwide, inquiries for FTZ space have increased by more than 500%. Still, many shippers dealing in high-value products remain uncertain about the best time—or even the feasibility—of utilizing FTZs.
“The demand for FTZs is growing, so we’re going to need to turn more warehouses into FTZs,” said Curtis Spencer, CEO of IMS Worldwide. “The demand for bonded space is off the charts because importers of high-value goods need more flexibility in managing tariff exposure.”
However, access to FTZs is not immediate. Companies must have an established framework and secure FTZ space well in advance or go through the complex process of operating an FTZ independently—a process that can take up to two years.
As bonded warehouse capacity tightens, FTZs could provide longer-term savings and strategic advantages for importers of high-value commodities—if used properly.
“Foreign trade zones are just really the only way to mitigate and manage tariff pain,” Spencer said. “There’s no avoiding some pain, but FTZs offer a way to cushion the blow without disrupting your high-value supply chain.”
He added that importers of high-value goods are missing out on significant savings by not leveraging FTZs. “Shippers are leaving money on the table by not exploring this option.”
Despite growing interest, there’s still widespread confusion about how FTZs work. Some importers mistakenly believe FTZs can eliminate tariffs altogether. In reality, duties are still required—they’re just deferred. The rate is locked in when the high-value merchandise enters the FTZ, not when it later enters the US market.
“The current executive order requires that high-value goods entering an FTZ are locked into the tariff rate in effect at the time of arrival,” said Melissa Irmen, director of advocacy and strategic relations at the National Association of Foreign-Trade Zones (NAFTZ). “If the tariff is 10% when the goods arrive and it’s removed three months later, the importer still owes 10%. But if the rate rises later, they’re shielded by the lower original rate.”
Some shippers are further leveraging FTZs designated for manufacturing, allowing them to assemble or process high-value products within the zone. This can alter the tariff classification, potentially resulting in a lower duty when the goods finally enter the US.
Companies like Dixie Cullen Interests are also providing hybrid solutions, offering access to both bonded warehouses and FTZ facilities. This enables shippers to balance the benefits of both systems for storing and managing high-value cargo.
Source: www.joc.com