Before a
company can seriously consider applying for status as a
special purpose subzone, it obviously needs to take a
good hard look at how much it can realistically expect to
save.To operate in
an FTZ a company needs to meet certain government
prerequisites. Most of those deal with how the goods
inside the zone are secured and a company's system for
controlling inventory. The extra security and inventory
control measures are likely to raise some costs.
So, will the potential
savings offset the additional costs? Let's take a closer
look, starting with several assumptions about a
company’s size and duty rates. Naturally, if your
company is smaller or larger, you need to adjust the
amounts accordingly. First, assume these conditions:
1) Company imports =
$10 million annually.
2) 10% duty rate.
3) 10% interest rate.
4) Four Inventory
Cycles per Year or $2.5 million each.
5) 17% exports (not
currently employing the drawback method).
6) 2% waste, scrap and
destroyed goods.
7) A duty reduction
(inverted tariff) on 1/2 of imported parts: 10%
reduced to 3.7%
Operating in a FTZ with
these assumptions would deliver the following:
Benefits:
1) Exports- $ 10 million
annual inventory with 17% re-exported
$1.7 million x 10%
duty rate = $170,000
2) Waste (2% of $ 10
million at 1O% duty) = 20,000
3) Inventory tax $2.5
million average x 2.3% tax = 57,500
4) Duty reduction through
inverted tariff
Reduce 1/2 imported
parts- 1O% to 3.7%
$10 million x 1/2 x 10% = 500,000
$10 million x 1/2 x 3.7% = -185,000
Savings =
$315,000
5) Deferral
Opportunity
cost/interest (est.)
$202,500 x 1O% = 20,250
Total Benefits
(Revenue)* = $582,750
Expenses
1) Estimated FTZ Zone Fees
(zone fees vary) = $10,000
2) Internal Clerical,
inventory and computer expenses (est.)= $100,000
Total Expenses* =
$120,000
Net Profit to
Zone User* = $472,750
*using the assumptions and
estimates given!
