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Deals On Wheels

Deals On Wheels

Moving our production to a foreign trade zone has enabled us to become more competitive, pricewise; we can sell at 30 percent below the cost of competing products,” says Daniel Del Aguila, an owner of ProdecoTech, an Oakland Park, Florida-based manufacturer of electric bicycles (also known as e-bikes).

Del Aguila and business partner Robert Provost came out of the consumer electronics business when they launched ProdecoTech in 2008. The pair, which brought its first products to market in 2010, is now expanding their national dealer network. With its supply chain now optimized and assembly done in Florida, the company is ready for big growth in 2016.

This is thanks to foreign trade zones (FTZs), an integral part of the business strategy for ProdecoTech—which has seen a transformation from importing of finished bicycles (paying duties in the process) to manufacturing. Since moving its production to FTZ 25 at Florida’s Port Everglades in May 2015, the company has seen a range of benefits typical of what is available to companies operating in foreign trade zones. These benefits include simple deferral of customs duties—an example being imports into a bonded warehouse or a fuel storage tank, big business in Port Everglades—with duties then payable when the goods are moved out of the FTZ.

In other cases, duties can be lowered or even eliminated. In this example, the cost economies are twofold: saving on Asian duties which would otherwise have been assessed on finished products exports; and on the favorable U.S. treatment of e-bikes when they are shipped out of the FTZ.

For ProdecoTech, certain U.S.-made parts (for example, handlebars) are assembled with foreign-sourced components such as battery packs and motors in a 60,000-square-foot facility at FTZ 25—which has facilities at multiple locations around Broward County. “With our new business model, where we assemble the bicycles here, we can control the quality,” says Provost. “That’s huge for us, because we’ve moved to our own proprietary designs—a key selling point for us. The electric side can be done right where we sit, and this sets us apart from folks who leave the manufacturing to assemblers thousands of miles from here, in places like China and Taiwan.”

The move to FTZ 25 has brought additional, unanticipated benefits, such as the rigorous security requirements for operating in the zones. Del Aguila notes that the high security standards even serve as a deterrent to internal theft of high-value components such as motors.

Jorge Hernández, director of Business Administration at Port Everglades, says FTZ 25 users currently employ more than 550 people. “There are also multiple related jobs in the truck, train, ocean, air modes of transport, import/export administration, support and enforcement associated with the FTZ.” Asked about the major categories of businesses benefitting from the zone, he replies, “The general purpose FTZ users are primarily distributors of merchandise being exported or re-exported to Latin America and the Caribbean markets. Cosmetics, perfumes, liquor, tools, auto parts and machinery are the leading such commodities.”

The FTZ program itself was launched in 1934 and is administered by the Foreign Trade Zone Board, part of the U.S. Department of Commerce; it is closely aligned with Customs and Border Protection. Port Everglades’ FTZ 25 began operating in 1977—the first in Florida. Other FTZs have followed across the nation and in the Sunshine State, at ports including Miami, Tampa, Jacksonville, West Palm Beach and Panama City.

Applications for FTZ status, or modifications to existing facilities, must gain approval from the Foreign Trade Zone Board. The agency is very quick and responsive. “FTZ 25 has applied for and received FTZ Board approvals for many new authorizations/modifications/expansions in a very efficient manner,” says Hernández. “Most modifications are approved within six weeks, production authority within three months, and expansions within nine months.”

ProdecoTech is taking great advantage of common benefits, Hernández explains.

“Prodeco’s component bicycle parts,” he says, “normally dutiable when brought to the U.S., are brought into FTZ 25 without the payment of duty, and produced into bicycles. The finished product becomes a duty-free item that is entered into the U.S. from their FTZ facility without the payment of any duty.”

The ProdecoTech partners are working overtime building their own business, but Del Aguila feels his experience is instructive on a much larger level. “We’ve been able to bring jobs back to the U.S. that otherwise would be done in Asia. There may be many other opportunities for the government to lower tariffs on other merchandise that could be processed in FTZs, just like we’ve done.”


Rolling On The Water

Roll-on/Roll-off (RoRo) shipping—where vehicles are driven on and off ocean carriers via ramps (rather than lifted by cranes)—serves a global marketplace. Department of Commerce data shows that U.S. exports of automobiles and light trucks soared to 2.1 million units in 2014, worth $57.5 billion, more than double 2009 levels. China, Germany (an importer as well as exporter) and the Middle East, plus dozens of smaller receivers, form a big part of the export growth story. Further illustrating the vagaries of the trade, imports from Mexico—which ships many finished autos by rail into the U.S. —also move via RoRo into U.S. Gulf ports.

Here are some considerations to mull over before choosing a RoRo carrier.

“The port’s rotation and scheduling is critical in choosing a carrier,” explains Dona Toteva Lacayo, director of Business Development at Port of Hueneme. “It’s all about where the vehicles are being marketed.” The port, with three auto processing centers, moved 321,000 autos in the past year, with imports greatly outnumbering exports. Lacayo adds that reliability and consistency were vital, suggesting that shippers’ global relationships with the carriers were critical to smooth flows. For Port of Hueneme’s mix of imports and exports, she stresses that backhauls are a plus, “as vessels with otherwise empty space must return to their load ports for the next move.” She mentions that the Japanese stalwarts Honda, Toyota, Nissan and Acura, as well as General Motors, are moving autos westbound to Asia.

Looking to the future is Volkswagen Group of America (VWGoA), which moves 650,000 imported and domestically produced vehicles to its dealer network and roughly 20,000 vehicles outbound from its Chattanooga plant (mainly to South Korea and the Middle East). Jan Bures, the automaker’s executive vice president of Group After Sales & Services, says VWGoA is looking broadly at its network, which currently includes movements through Davisville, Rhode Island; Jacksonville; Houston; and San Diego. He also expresses concern that vessel schedules sometimes lack the desired flexibility, especially in the North Atlantic. “It’s always a close-finish scenario” to get cars to market with the desired timeliness, Bures says.

In remarks at a recent logistics conference, Bures emphasized the importance of process efficiency—where the vessels provide a vital link in the chain—and talked about optimizing the network to support VWGoA’s goal of 1 million North American units by 2020.

Network considerations are the driver of port choice, which, in turn, will lead to choices of carriers. VWGoA’s network analysis might lead to a recommendation that vehicles move through a second West Coast port.

Another perspective from the port side comes from John Haroldson, manager of International Trade, at the Port of Wilmington on the Delaware Bay. As a “landlord port,” waterfront real estate is leased out to automobile processors whose customers include Chrysler and General Motors, both of whom export cars to the Middle East.

Haroldson stresses the importance of ample storage, dedicated deep water RoRo berths and experienced labor. Recognizing the broader supply chain and network issues, he notes Wilmington’s proximity to the Atlantic—with no bridge issues and easy interface with interstate highways and Class I rail service (with sidings that can handle bi- and tri-level railcars).

RoRo ships are also used for transporting heavy trucks, tractors and oversized machinery and project cargo to far-flung destinations. Officials at Grimaldi Group, which has counted Atlantic Container Line (ACL) as one of its companies since 2001, are proud of their zero damage-level targets and say customers such as Fiat Auto, Ford Motor Co. and General Motors have rewarded the company for the quality of its services on numerous occasions. ACL’s interface with forwarders and middlemen (rather than the actual vehicle or equipment manufacturers) for cargo originating in North America also emphasizes the network benefits possible from the Grimaldi matrix, which stretches far beyond Europe and serves West Africa and destinations farther afield.

Advances in information technology may enhance the shipper experience in the future. At the same logistics event where VWGoA’s Bures spoke, panelists from leading auto manufacturers discussed the feasibility of a shared information platform that would include shipment tracking and damage reporting. The big data trends flowing across all parts of the logistics landscape might just benefit the increasingly complicated seaborne RoRo business—no longer the old “Point A to Point B” operation of days gone by.