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.”