When to consider an FTZs to Address Tariff Volatility

In the latest turn of the tariff tide, the U.S. and China have reached a temporary trade agreement, dialling tariffs on made in China goods down to 10% (in addition to existing 20% IEEPA tariffs for a cumulative 30%) across many categories. It’s a reprieve but not a resolution. Merchants need to closely track tariff and trade updates to get all the information about new regulation change. With geopolitical tensions still high and retaliatory trade measures changing across the globe, businesses are evaluating how to future-proof their supply chains. 

One option gaining renewed attention: Foreign Trade Zones (FTZs). 

What Is an FTZ? 

A Foreign Trade Zone (FTZ) is a specific area within a country that is officially designated for special customs treatment. Goods can be brought into an FTZ either from overseas or domestically without immediately incurring import duties, tariffs, or local taxes. In many cases, duties are only paid when goods leave the FTZ and enter the local market. If they are re-exported, duties may be reduced—or waived entirely. The U.S. International Commission (USITC) reported merchants operating in an FTZ experienced duty cost savings of $1.2 billion in 2021. 

FTZs are used worldwide under different names: free zones, bonded warehouses, special economic zones (SEZs), or customs-free zones. While policies vary by country, the core benefit remains the same: giving businesses more flexibility in how they handle goods and when (or whether) duties are paid. 

For instance, in the U.S., the customs and border patrol (CBP) defines FTZs as secure areas under its supervision that are generally considered outside U.S. Customs territory upon activation. This means that goods can be imported into these zones without formal customs entry procedures or payment of duties until they enter U.S. commerce. 

Why Businesses Are Re-Evaluating FTZs 

Tariffs may have temporarily softened between the U.S. and China, but global trade remains unpredictable. In this climate, FTZs provide a buffer. 

Whether you’re a merchant navigating consumer demand in multiple markets, or a 3PL consolidating inventory near key regions, FTZs offer optionality. They reduce exposure to regulatory volatility and let businesses better align duty payments with actual distribution paths. 

How to Use FTZs Effectively 

FTZs aren’t a workaround, they’re an investment in trade flexibility. To make them work for your business: 

1. Understand your national policy: FTZ benefits vary by country. Some allow duty-free assembly, others offer corporate tax incentives or VAT suspension. Know the specifics. 

1. Work with the right partners: Make sure your partners have experience operating within FTZ requirements. 

1. Integrate with your fulfillment strategy: FTZs are most effective when paired with dynamic routing, smart carrier selection, and real-time landed cost data. This ensures the goods you move out of an FTZ are priced and cleared efficiently. 

1. Plan for re-exports: If you operate in multiple regions, storing inventory in an FTZ allows you to respond to demand and ship without being locked into one market’s duties. 

What Are the Benefits for Merchants and 3PLs? 

For merchants: 

• Delay or eliminate duties: Duties are deferred until the product enters the local market or avoided altogether if re-exported. 

• Flexibility in duty payments – Under zone procedures, businesses have the option to pay duties at the rate applicable to either the original foreign materials or the finished product, whichever is lower, when the goods leave the FTZ and enter U.S. commerce 

• Exemption from State and Local Taxes – Certain tangible personal property within FTZs is generally exempt from state and local ad valorem taxes, providing additional financial benefits to businesses operating within these zones. 

• Mitigate risk: Stay insulated from last minute tariff increases or policy shifts. 

• Optimize cash flow: Avoid tying up capital in duties on goods not yet sold. 

• Enable global expansion: Stage inventory in one region and ship to others without incurring double duties. 

For 3PLs and logistics partners: 

• Improve service offerings: FTZ capabilities open up new solutions for tariff-sensitive clients. 

• Enable inventory agility: Consolidate SKUs for different markets without immediate customs clearance. 

• Expand global reach: FTZs near key trade hubs (e.g., Dubai, Singapore, Rotterdam) can support multi-region distribution strategies. 

FTZs Are a Strategic Option, Not a Shortcut 

In a tariff rattled world, businesses are rethinking how and where goods move. FTZs won’t be right for every shipment, but they’re an increasingly important consideration in global logistics planning. Especially for those looking to minimize landed cost volatility. In Q1 2025, merchants have seen on average 18% decrease in conversion due to increased landed costs and tariff impact. Finding a way to mitigate duties and tax impact is imperative.  

At FlavorCloud, we help businesses manage this complexity, from landed cost automation to cross-border compliance, so you can ship smarter, not just faster. Schedule a consultation to learn other tariff mitigation strategies.