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Monday, August 7, 2017

Globally Integrated Logistics Zone and FTZ

The Opportunity - Southwest and Asia Pacific Markets

Kingman offers a unique intersection of air, rail, and highway infrastructure. Proximity to major regional markets and international markets create unparalleled geographical advantages. The confluence of the CANAMEX Corridor through Mohave County alongside the Burlington Northern Santa Fe Railway (BNSF) creates a “made for business” logistics hub ready to meet the needs of increased traffic on the I-11 CANAMEX Corridor.

Low operating costs create a compelling business model and small to mid-sized companies with market presence in the Southwest and Asia-Pacific markets may capture proximity benefits for their supply chain.

Globally Integrated Logistics Zone // Port Regionalization

The emergence of intermediate hubs (offshore terminals) created a new hierarchy within the port system, acting as intermediate locations. Additionally, the efficiency and capacity of container cranes improved, enabling ports to handle larger ships and a higher containerized throughput, particularly in the context of efficient inland distribution.




The Port of Los Angeles and other large port gateways on the west coast must operate with a wide array of various issues that compress their ability to grow. Deep water requirements for Post Panamax ships combined with a wide variety of local and regional issues, have created reduced land availability in proximity to major gateways. Inland ports, such as Kingman, offer competitive advantages for Port operations that can be external to core gateway operations via port regionalization.

Kingman Advantages

  • Class 1 Rail Access
  • I-40 Corridor Access
  • CANAMEX Corridor Access
  • Reduced Operational Costs
  • Reduced Cost of Goods Sold (COGS)
  • >7 million market <200 miles (Maricopa Co. & Clark Co.)

Rail Segmentation

  • Aggregate
  • Bio-fuels
  • Chemicals
  • Cullet/glass
  • Machinery/equipment
  • LPG
  • Lumber
  • Metals
  • Plastic resin
  • Steel products
  • Petroleum products
* Load Types include Dry Bulk, Liquid Bulk, Dimensional, Pulp/ Paper, Food.

Foreign Trade Zone / FTZ

Inland ports typically designate an area for a Foreign-Trade Zones; secure areas under U.S. Customs and Border Protection supervision that are generally considered outside CBP territory upon activation. FTZ advantages accrue through;
  • Deferral of duty
  • Deferral of excise taxes
  • Tax free removal from the FTZ as per Tariff Act
  • Security Level for CBP specifications


Foreign-Trade Zones (FTZ) are secure areas under U.S. Customs and Border Protection (CBP) supervision that are generally considered outside CBP territory upon activation. Located in or near CBP ports of entry, they are the United States' version of what are known internationally as free-trade zones.

Authority for establishing these facilities is granted by the Foreign-Trade Zones Board under the Foreign-Trade Zones Act of 1934, as amended (19 U.S.C. 81a-81u). The Foreign-Trade Zones Act is administered through two sets of regulations, the FTZ Regulations (15 CFR Part 400) and CBP Regulations (19 CFR Part 146).

Foreign and domestic merchandise may be moved into zones for operations, not otherwise prohibited by law, including storage, exhibition, assembly, manufacturing, and processing. All zone activity is subject to public interest review. Foreign-trade zone sites are subject to the laws and regulations of the United States as well as those of the states and communities in which they are located.

Under zone procedures, the usual formal CBP entry procedures and payments of duties are not required on the foreign merchandise unless and until it enters CBP territory for domestic consumption, at which point the importer generally has the choice of paying duties at the rate of either the original foreign materials or the finished product. Domestic goods moved into the zone for export may be considered exported upon admission to the zone for purposes of excise tax rebates and drawback.

Qualified public or private corporations that may operate the facilities themselves or contract for the operation sponsors foreign-trade zones. The operations are conducted on a public utility basis, with published rates. A typical general-purpose zone provides leasable storage/distribution space to users in general warehouse-type buildings with access to various modes of transportation. Many zone projects include an industrial park site with lots on which zone users can construct their own facilities.

Subzones are normally private plant sites authorized by the Board and sponsored by a grantee for operations that usually cannot be accommodated within an existing general-purpose zone. (Department of Homeland Security, 2017)


 Advantages of an FTZ

  • CBP duty and federal excise tax, if applicable, are paid when the merchandise is transferred from the zone for consumption.
     
  • While in the zone, merchandise is not subject to U.S. duty or excise tax. Certain tangible personal property is generally exempt from state and local ad valorem taxes.
  • Goods may be exported from the zone free of duty and excise tax.
  • CBP security requirements provide protection against theft.
  • Merchandise may remain in a zone indefinitely, whether or not subject to duty.
  • The rate of duty and tax on the merchandise admitted to a zone may change as a result of operations conducted within the zone. Therefore, the zone user who plans to enter the merchandise for consumption to CBP territory may normally elect to pay either the duty rate applicable on the foreign material placed in the zone or the duty rate applicable on the finished article transferred from the zone whichever is to his advantage.
  • Merchandise imported under bond may be admitted to a FTZ for the purpose of satisfying a legal requirement of exporting the merchandise. For instance, merchandise may be admitted into a zone to satisfy any exportation requirement of the Tariff Act of 1930, or an exportation requirement of any other Federal law (and many state laws) insofar as the agency charged with its enforcement deems it so.

Considerations for establishing an FTZ in Mohave County

  • Discussions could be parsed into several logical parts
  • Geographic Benefits / Liabilities
  • Comparative Economic Benefits / Liabilities
  • Work Force Strengths, Weaknesses, Opportunities, Targets
Each area may draw conclusions which may or may not support the FTZ concept, but it will be beneficial to consider the first and most important goal of any FTZ is to establish a foothold of economic opportunity for Mohave County which can be a catalyst and act as a “launch pad” for the improvement of economic conditions for existing business. An FTZ should also be a major positive decision point in the recruitment of new and appropriate industry and business to Mohave County and to encourage discussion on the planned and systematic growth of the county.

Regional Positioning - California

California posted a 2.5 trillion GDP in 2015. If California were a nation state, it would rank behind the United States, China, Japan, Germany, and the United Kingdom. California ranks slightly ahead of France and Brazil (World Bank, 2017).



California Sectors

Three important sectors make up 29% California’s GDP, including transportation, trade, utilities, manufacturing, agriculture, and mining. Accordingly, the Mohave County region is proximal to approximately 725 billion GDP of highly targetable trade, and those three segments would still rank in the top 20 global economies, surpassing the entire GDP of Switzerland and Saudi Arabia.


 West Coast Ports

West coast ports transit large scale rail traffic to the KC Smartport from where 85% of the US domestic population may be reached in two days. Kingman is one day (16 hours or less) from the West Coast ports and offers access to Las Vegas, Phoenix, Albuquerque, El Paso, and Mexico City, the Port of Lazaro Cardenas, and Veracruz. Port traffic on the west coast is dominated by Los Angeles.

Port of Los Angeles and Long Beach

The Port of Los Angeles (POLA) is America’s largest, with the Port of Long Beach (POLB) in second place. Combined, they handle about 16 million twenty-foot equivalent units (TEU), almost three times the size of New York. This trade growth is fueled by China and Pan Asian trade routes.
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CANAMEX Corridor

The compilation of evaluation data for designation of the CANAMEX corridor through the Maricopa region is the Arizona Department of Transportation (AZDOT) report that solidifies the route proposed and accepted by the Maricopa Association of Governments. The map, shown here, delineates the route of the CANAMEX corridor and ties through Highway 40 in Kingman. Investments made to accommodate growing truck traffic on the CANAMEX Corridor align with known truck traffic patterns and correlate with warehouse densities in metropolitan zones. 

Sun Corridor

Moving trade across the CANAMEX corridor is part of the equation. Undertaking an industry led stakeholder identification of key synergies to be captured by the greater Kingman Region will provide the basis for an analysis of job creation potential and weight that with labor rate potential in order to capture as many jobs as possible and amplify the wage base.

The State of Arizona recognizes the importance of inter-municipal and inter-organizational collaboration. It requires partnerships to move cargo from a point of entry on Arizona’s border, to or through the state. These partnerships range the various modes of transportation while the corridor reflects an opportunity to connect Mohave County to the emerging super-corridor, a.k.a. the Sun Corridor.



The Joint Planning Advisory Council has a shared vision to jointly coordinate planning efforts and carries the consent of the Maricopa Association of Governments, Pima Association of Governments, the Central Arizona Governments, and the Sun Corridor Metropolitan Planning Organization (Joint Planning Advisory Council, 2017).


Proximity to the Auto Industry in Mexico

Proximity to Mexico offers some prospect to capture part of an 17 billion plastic resin supply chain (Export.gov, 2017). Due to the considerable number of automobile manufacturers in Mexico, the market for specialized plastic feedstock is accelerating, this may be immensely impacted by the expansion of commercialized 3D printing, which requires a specialized feedstock. The market for 3D printing feedstock is expected to meet or surpass the amalgamated plastic resin export market within five years.


Market Risk

Kingman is on the BNSF Class 1 rail line moves domestic traffic to the KC Smart Port. Kingman offers midpoint value and regional highway access to domestic markets of Phoenix and Las Vegas, it also connects to El Paso, thus able to connect to Mexico’s automobile production corridor while boasting Atlantic and Pacific access through bidirectional connectivity to the ports of Veracruz and Lazaro Cardenas.

Assumption of political risk is assigned to the North American Free Trade Agreement (NAFTA) being renegotiated and/or terminated during the proximal three-year horizon is low as confirmed by the Executive Office of the President through the U.S. Trade Representative Office as a releast of NAFTA negotiating objectives (Executive Office of the President, 2017).


Strategic Planning - Overview

Given the strategic location of Kingman and the nexus of rail, air, and highway, it seems like it would be wise to examine certain industry sectors to determine if they are candidates for Kingman served markets. These industries compromise the initial research required to formulate a solid and credible economic development plan that leverages the Kingman advantages.


The Example of Plastic Resin and 3D Printing with Polyamide Feedstock

Of the current market segmentation, plastic resin was selected for a brief scan of data and market opportunity relative to the geophysical positioning of Kingman. This was done due to major export and import points relative to BNSF class 1 rail and intra-rail connectivity providing a supply chain corridor from Joffre and Los Angeles to Mexico City.


U.S. exportation of plastic resin to Mexico represents a 17-billion-dollar export market. Mexico is also the largest export destination for U.S. Plastic and Rubber Equipment, Tools, Dies, Jigs, and Industrial Molds. It is also the fifteenth largest destination for U.S. Additive Manufacturing equipment. More importantly, Mexico is expected to see 3D printing feedstock, polyamides, exceed all other forms of imported resin by the year 2020.

Industry segmentation for the consumption of resin recollects companies like GM, Ford, Chrysler, and Toyota, but it also features companies like Fuji Heavy Industries and some of the World’s largest consumers of tech equipment used for processing and bio-packaging products in the food and beverage sector. BNSF also switches in El Paso with Ferromex offering integrated service to Mexico City.


Integration of the FTZ

Storage sites confer supply chain proximity of plastic resins with short market lead times, making them ideal for established corridors such as Los Angeles/Mexico City through Kingman. Trans-shipment of plastic resin, in addition to regional consumption, provide a customer base that could leverage economic benefit through FTZ storage and re-exportation duty free and excise tax free. This could, as an example, apply to Sterlite Manufacturing using plastic resin originating in Canada for plastic products exported either within the NAFTA market or external to it, with one way or two-way taxation benefits being applicable.


Collateral Opportunity Points applicable to FTZ and international markets

Other opportunities include materials for construction, electrical, and agricultural product trans-shipment. Extending the supply chain includes not only the Pacific Rim countries, but also Canada as a large feedstock supplier of North American plastic resin feedstock from Southern Alberta’s Joffre Novachem facility. Trans-shipment through Kingman offers not only tax exempted status, it also offers currency arbitrage opportunity through contract forwarding of exchange rates the NAFTA partners.


Project Management

Economic development project management must be aligned with the realities on the ground in addition to the vision and direction of local and regional governments. These components plus stakeholder groups from operational segments of the logistics zone and imperative. The physical proximity of class one rail, air operations, and the CANAMEX Corridor trucking access creates a trifecta of advantage for Kingman. A seven-step data set for industry targeting consultations with stakeholders;

  • Assessment of Alignment for Economic Stakeholders
  • Existing Market Status Analysis & Data Management
  • Data Collection, Normalization, and Statistical Analysis for Rail Cargo
  • Data Collection, Normalization, and Statistical Analysis for Truck Cargo
  • Data Collection, Normalization, and Statistical Analysis for Air Cargo
  • Integrated Analysis of Road Rail and Air Data to define overlap opportunity
  • Identification of Key Industry Targets

Regionalization Knowledge Management

  • Inland Port
  • Port Regionalization
  • NAFTA Trucking w CANAMEX export/import
  • Asia Pacific Truck/Rail/Shipping
  • Other International Markets
  • Transshipment
  • Public Communications
  • Foreign Trade Zone (FTZ)
  • U.S. / Mex / Can (customs/douane)

Governance

Port governance is flexible and may span central government owned entities to fully privately owned and controlled ports. Typically, port governance in the United States is most often public in nature. The organizational design in areas with private control in place and a shifting business environment quite often benefit from a hybridized governance structure that reflects the need for a flexible governance structure. These could involve a combination of private industry leaders from stakeholder industries alongside public representatives appointed by regional government entities and/or public trust institutions.
Rail operators, class 1 and short line, plus logistics service providers and other private stakeholders would be likely candidates for inclusion. So long as there is widespread agreement on the best structure, it is possible to have great flexibility in the design of any governance changes and/or initiatives.

References

Department of Homeland Security. (2017, 07 26). About Foreign-Trade Zones and Contact Info. Retrieved from U.S. Customs and Border Protection: https://www.cbp.gov/border-security/ports-entry/cargo-security/cargo-control/foreign-trade-zones/about
Executive Office of the President. (2017, 07 27). USTR Releases NAFTA Negotiating Objectives. Retrieved from Office of the United States Trade Representative: https://ustr.gov/about-us/policy-offices/press-office/press-releases/2017/july/ustr-releases-nafta-negotiating
Export.gov. (2017, 07 27). Mexico Country Commercial Guide. Retrieved from Mexico - Plastic Materials / Resins: https://www.export.gov/article?id=Mexico-Plastic-Materials-Resins
Joint Planning Advisory Council. (2017, 07 27). A Planning Partnership for the Arizona Sun Corridor. Retrieved from Joint Planning Advisory Council: http://www.jpacaz.org
Kimley-Horn and Associates, Inc. (2000, August). CANAMEX Corridor Study. Retrieved from Maricopa Association of Governments: https://www.azmag.gov/Documents/pdf/cms.resource/ADOT-MAG_CANAMEX_FinalReport95374.pdf
Kingman and Mohave Manufacturing Association. (2017). Conceptual Overlay. Kingman: Kingman and Mohave Manufacturing Association.
World Bank. (2017, 07 26). Gross Domestic Product 2016. Retrieved from Databank - The World Bank: http://databank.worldbank.org/data/download/GDP.pdf