DC Velocity - December 2012

strategicinsight GLOBAL LOGISTICS — AMERICAS

OUTSOURCE OR IN-HOUSE?

Yamaha Corp. is the world’s largest manufacturer of musical instruments and a leading supplier of audio-visual products. The company manufactures those products in Asia and Europe; its YCA subsidiary, headquartered in Buena Park, Calif., imports them into the United States for distribution in U.S. and other markets in the Americas. U.S.-bound shipments arrive by ocean and air.

In 2010, YCA’s import/export compliance group decided to address areas where costs were high. One such area involved products that were imported to the United States and subsequently exported. Those shipments incurred duties in both the United States and the destination countries, and YCA was paying customs brokerage fees for both sets of import transactions. Another concern was the Merchandise Processing Fee (MPF) assessed on each formal entry, which was scheduled to increase the following year.

YCA discovered that those costs and more could be eliminated or reduced by importing through foreign trade zones. The company hired the consulting firm KPMG to guide it through the complex planning and preparations, including the feasibility study, license application, analysis of security requirements, methodology for selecting FTZ management software, and establishment of operational procedures, says Juna Kim, YCA’s import/export director. Internally, YCA’s management, import/export compliance group, and information technology team worked on the project.

Yamaha decided to establish two FTZs, one in the Los Angeles area and another near Chicago. The importer wanted to retain full control of compliance with the complex FTZ regulations. Yet the company felt it did not make economic sense to go through the lengthy and expensive site-approval process, and then to hire and train employees to set up and operate FTZ facilities, Kim says. The solution: become licensed as a foreign trade zone user, and lease dedicated space in established FTZ warehouses operated by experienced, trustworthy third parties.

What can FTZs do for you?

HARMONIZING OPERATIONS

Today, YCA works with third-party warehouse operators Schafer Brothers in Long Beach, Calif., and DSC Logistics in Elwood, Ill. These licensed FTZ operators set up segregated areas for YCA within their facilities. They handle receipt, storage, pick/pack, and shipping, and they ensure that security mandates are met. The importer, meanwhile, controls and manages the day-to-day decisions and transactions, as well as compliance with the stringent customs and inventory control requirements.

To ensure compliance and enable electronic data sharing, YCA licensed the FTZQW software module from The software automatically generates all required documents and reports, and files them with the proper regulatory agencies. These include an annual report to the Foreign Trade Zone Board, monthly activity permit reports, inventory control reports, and removal audit reports, among others. The system handles input from the two FTZs but maintains the complete data separation the government requires.

One of the most important issues for YCA, says Kim, was systems integration. In order to keep accurate track of shipments and inventory—and their related import and export transactions—as the goods move into and out of the zones, the software must interface with YCA’s enterprise resource planning (ERP) system and the third parties’ warehouse manage-

Foreign trade zones (FTZs) offer qualified importers a host of benefits. These will vary with the individual company’s situation, but they include the following:

▪ Certain types of merchandise can be imported into a zone without undergoing formal customs entry procedures or incurring import duties.

▪ Customs duties and excise taxes are deferred until goods leave the FTZ for U.S. consumption.

▪ If the merchandise never enters U.S. commerce, the importer does not pay duties or taxes on those items.

▪ When imported parts or materials are incorporated into a finished product while they are in an FTZ, the importer pays the duty rate for the finished product when it leaves the zone instead of paying the typically higher rates for the parts and materials.