Greater Detroit Foreign Trade Zone

Case Studies

Included below are five examples of companies who utilize Foreign Trade Zones, and why. Click on the company name to find out more.

BASF CORPORATION
BASF Corporation has been operating a foreign trade subzone since late 1995 to import raw materials and manufacture vitamins. The company's main intention for utilizing its subzone status are to reduce manufacturing costs, remain competitive in both the domestic and international markets, and realize savings in Customs duties.

MARATHON OIL
Operating its FTZ since the Spring of 1997, Marathon Oil has experienced cost savings in a short period of time. This company utilizes its zone status for the storage of foreign crude oil, primarily imported from east African countries to manufacture gasoline.

NORTHWEST AIRLINES
Since late 1995, Northwest Airlines has operated a FTZ exclusively for the storage of aviation fuel for its aircrafts.

AUTO ALLIANCE INTERNATIONAL, INC.
Auto Alliance has been reaping the benefits of its zone status since Spring of 1986. It uses its zone for the import and storage of automobile parts.

MOTOR CITY INTERMODAL DISTRIBUTION, INC.
Since February of 1991, Motor City Intermodal, which operates a warehouse and distribution business, has been operating a general purpose zone through the GDFTZ. Its zone allows the company to operate on a worldwide basis, which gives Motor City the opportunity to offer added benefits to its clients.

BASF CORPORATION

BASF Corporation has been operating a foreign trade subzone since late 1995 to import raw materials and manufacture vitamins. The company's main intention for utilizing its subzone status are to reduce manufacturing costs, remain competitive in both the domestic and international markets, and realize savings in Customs duties.

By operating its subzone, BASF experiences several benefits, including:

Manufacturing inverted tariff
This is a privilege from a FTZ on imported materials. For example, if BASF were to simply import its raw materials, the rate of duty would be approximately 15 percent. However, because it imports the raw materials, stores them in its subzone, and then produces vitamins, all within the subzone, the rate of duty on its finished product is only about 5 percent. Thus, savings occurs because the raw materials are not tariffed, while the finished product is tariffed at a lower rate.

Deferral of duty payment
By delaying payment of tariffs until after the manufacture of its vitamins, BASF can operate at reduced costs.
Accountable loss in a FTZ
This is experienced when a company brings in materials to a FTZ, but does not export the same quantity. For example, in BASF's case, if it imports 100 lbs. of raw materials to be used for the manufacture of its vitamins and during the manufacturing process, 50 lbs. of vitamins are produced (a 50 percent reduction in weight), instead of paying a tariff on 100 percent of the imported product, BASF only pays on 50 percent.
Direct export of product
This activity results in the benefit of no tariff, due to a direct international export of a product from a FTZ. For BASF, if it exports its vitamins to an international market directly from the subzone, it owes no tariffs, either on the raw materials it imported or the finished product it exported.

By realizing all of these benefits, BASF finds the cost savings substantial and the benefits well worth the operation of a FTZ.

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MARATHON OIL

Operating its FTZ since the Spring of 1997, Marathon Oil has experienced cost savings in a short period of time. This company utilizes its zone status for the storage of foreign crude oil, primarily imported from east African countries to manufacture gasoline.

Marathon Oil's main reasons for operating a zone include import duty avoidance, which allows for lower raw materials raw materials cost, and inverted tariff.

While some cost savings from operating its FTZ have been realized, Marathon notes that savings is somewhat dependent upon the specific import and expects to increase its savings over time.

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NORTHWEST AIRLINES

Since late 1995, Northwest Airlines has operated a FTZ exclusively for the storage of aviation fuel for its aircrafts. The company's main intentions for operating a zone include:

The ability to maximize the utility of its resources in the Detroit metropolitan area. Through its FTZ, Northwest can categorize and co-mingle fuel for Customs.

The tax advantage Northwest receives by using FTZ materials.

The cost savings source to promote Northwest's services though Detroit as a hub of Northwest Airlines. By operating its zone, Northwest has been able to expand its international no-stop service from Detroit to various destinations, such as Beijing, Tokyo, Paris, Amsterdm, London, Frankfurt and Osaka.

Overall, Northwest's experience with its zone exceeds the company's initial expectations. Since operating the FTZ, it has doubled its volume of flights from the Detroit area. Without the zone, the cost of this increased volume of flights may have been too costly and prohibitive. Additionally, the zone allows Northwest to be cost competitive with its international destinations, and provides an ease of accounting and accountability for its product. Northwest also now has access to a broader range of vendors to who they can supply fuel in Detroit, which allows them to operate more competitively in the marketplace and have more reliability due to the security of fuel supply.

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AUTO ALLIANCE INTERNATIONAL, INC.

Auto Alliance has been reaping the benefits of its zone status since Spring of 1986. It uses its zone for the import and storage of automobile parts.

Initially, Auto Alliance began operating its FTZ to take advantage of the inverted tariff benefits and defer duties on its imported materials. Over the years, the company has realized lower tariffs to almost no tariffs on its products, when the automobile parts are used in exported vehicles or when the parts are earmarked for the final product to be exported. In addition, Auto Alliance realizes the benefit of duty drawback, which allows the company an extended period of time in which to pay back the duty owed on the imported or stored product(s).

The savings realized by Auto Alliance depend on the products and quantities it imports. As a future benefit, Auto Alliance would like to see a complete vehicle built within its zone, so that it can realize a much lower tariff on the final product.

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MOTOR CITY INTERMODAL DISTRIBUTION, INC.

Since February of 1991, Motor City Intermodal, which operates a warehouse and distribution business, has been operating a general purpose zone through the GDFTZ. Its zone allows the company to operate on a worldwide basis, which gives Motor City the opportunity to offer added benefits to its clients. These benefits include:

Using the FTZ as a distribution point in the U.S.
Savings through inverted duties.
Worldwide distribution without duties into the States.
Deferred payments of duties.

Rather than own the goods stored in its zone, Motor City facilitates the goods for others and shows its customers how and where to find savings through the storage of products in its general purpose zone. The company, along with GDFTZ, helps clients develop tax and duty strategies, so that their clients realize lower tariffs and tax benefits.

Over the years, Motor City Intermodal has saved substantial amounts of money for its clients. Core products stored in the general purpose zone are primarily automotive-related; however, the product line has diversified and now includes worldwide milk powders, dairy products, tobacco and alcohol, and Bolivian cigarettes that are distributed to Indian reservations in Canada.

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