California Apparel News

The exotic world of Foreign Trade Zones has begun to open up for Los Angeles apparel importers.

For years, most importers, including footwear companies, have been able to take advantage of Foreign Trade Zones set up near ports, airports and other areas where merchandise is considered to be in an international-trade region until it passes out of the zone.

Being in this Foreign Trade Zone allows companies to delay paying customs duties on goods until they are transferred into the U.S. market, which may be just a chain-link fence away. The result is better cash flow for businesses because they pay their duties closer to the time goods are shipped to customers, who are then billed for their purchases.

In the past, clothing and textile companies have been pretty much cut out of this arrangement because restrictive apparel quotas on goods coming from China and other places made the whole process too complicated and cumbersome to be profitable.

That is all changing. Apparel quotas essentially disappeared at the beginning of 2009, opening up an economic opportunity that the Port of Los Angeles and local logistics providers are starting to pitch to Los Angeles apparel importers. “This is a fairly new, emerging trend” said Jim MacLellan, director of trade development at the Port of Los Angeles. “The disappearance of quotas with China, I think, was one of the events that helped to trigger this evolution.”

For years, Los Angeles shoemaker Skechers Inc. has used a Foreign Trade Zone in Ontario, Calif., east of Los Angeles, to take advantage of paying deferred duties. In 2009, Wolverine World Wide Inc., an apparel and footwear importer, was approved to set up an FTZ subzone for three of its distribution centers near its Michigan headquarters. The Apparel Group,a subsidiary of Tal Ltd. in Hong Kong, has its own ForeignTrade Zone in Dallas. And Abercrombie & Fitch recently received approval for a Foreign Trade Zone for its warehousing and distribution centers in Albany, Ohio. More companies are joining in.

“This is a real hot topic,” said Trey Boring Sr., vice president of IMS Worldwide in Houston, who is working as a consultant with the Port of Los Angeles and rallying local apparel makers to check out the zones to see if they make sense.

Ilse Metchek, executive director of the California Fashion Association, is also working with the Port of Los Angeles to find apparel and textile companies that would benefit from being in a Foreign Trade Zone here. She believes it makes sense for bigger companies that bring in larger volumes of clothing to sign on to the idea. “Let’s say you have moving parts on a garment—a top that goes with a skirt. And they are not coming in together. You can hold them in the Foreign Trade Zone until all the parts arrive and then ship them to your customer, delaying when you have to pay duty,” she said. “Or let’s say you are a textile guy bringing in greige goods. You don’t have to pay duty on those 20,000 yards until you take it out of the FTZ to be printed.”

Other advantages include:

bull; Consolidated entries: Instead of paying a merchandiseprocessing fee to U.S. Customs, which averages $25 to $485 per entry, you can consolidate them and pay them as a single entry on a periodic basis. Someone bringing in 2,000 to 3,000 containers a year can save hundreds of thousands of dollars.

bull; Reorganization: If part of your shipment is going to the United States and the other part is going to another country, such as Canada, you can take the U.S.-bound goods out of the container and send the other goods to Canada without paying duty on the Canada-bound merchandise.

bull; Quality-control fixes: If merchandise comes in damaged, you can send it back to the foreign factory without having to pay duties to enter them into the United States. Usually, importers bring in goods through customs, pay the duties and then discover whether there are damaged items.

bull; More security: Insurance rates can be lower due to the heavier security requirements required by U.S. Customs to operate a Foreign Trade Zone.

Foreign Trade Zones for apparel and textile companies became more feasible lately because two logistics providers, California Cartage in Torrance, Calif., and Advanced Quality Logistics in San Pedro, Calif., have recently opened up Foreign Trade Zone warehouses for apparel-related companies.

David Latona, co-owner of Advanced Quality Logistics, said the concept is not for smaller start-ups but for moreestablished brands that have a number of entries that make it more financially profitable. “The software required has a price tag to it,” he said, adding that it takes at least about nine months to get the process up and running with security checks.

Metchek said the logistics companies are allowing a host of apparel companies to store their goods under the same roof without one label knowing what the other label is shipping. She said the Port of Los Angeles is working with apparel and textile companies to give them a cost analysis at no charge to see if this program is for them.

For more information, contact the California Fashion Association at (213) 688-6288. The CFA will be organizing a workshop on this subject May 17 at its downtown office.