The Little Train that Could
In a nutshell, the purpose of a foreign trade zone (FTZ) is to provide an environment in which U.S. companies or companies that manufacture in the U.S. can obtain foreign materials more competitively as part of the manufacturing operation and export more competitively and, therefore, participate more in the global economy. A virtual line is drawn around a building or an industrial park and, for all import, regulatory, tax purposes, that area is considered to be outside the United States.
In the modern world of business, one thing is for certain: the concept of a local market is no longer. The marketplace is global. With this in mind, local taxation, strict protocol and red tape can hinder the opportunities afforded to companies working internationally. In an attempt to answer this, foreign trade zones were introduced here in the U.S.
While there are several foreign trade zones in the state of Illinois, each grant serves a defined physical territory. Each of these zones is different depending on the nature of the businesses and the business environment. Sitting on a piece of remote property called Savanna Depot Park in northwestern Illinois is FTZ #271.
Bill Hooton, the operating manager of FTZ #271, explains the geographical differences. “There are 2,900 acres of land with some buildings and quite a bit of rail. More importantly it is mostly industrial zoned and available for new businesses and business relocation. All of that property – all 2,900 acres – is overlaid with foreign trade zone status. Those companies in the U.S. – or foreign companies looking to be in the U.S. – will find that a more attractive environment than if it did not have that status.”
According to Bill, it brings value to the individual companies that are participating by reducing costs in one way or another. This allows the participating companies to hire more people, sell more goods or, if things are working well, to export more product. It is a way of managing some of the costs of being a global participant in terms of finding opportunities while enabling a business to export more cost effectively.
Bill acknowledges that FTZ #271 is markedly different from other foreign trade zones in the state of Illinois. “Our particular FTZ is very different from one you would find in a large urban area where there are significantly developed industrial parks. The foreign trade zone in Chicago has a number of subzones, and, if you read off a list of those subzone users, then you would find Fortune 500 companies and huge international companies who are located in this state because they can get access to foreign trade zones among other things.”
According to Bill, however, these differences offer a unique opportunity to provide genuine value to investing businesses. “Even though we are fairly rural and what looks to be fairly remote, we have transportation capacities including seventy miles of rail and a highly profitable and competent Class III short line railroad who operates our industrial park.”
The net result for investing companies is the opportunity to utilize FTZ #271 as a gateway to access the North American market. The rail network is advantageous to FTZ #271, Bill explains.
“It goes from the Pacific Northwest into the Midwest of the United States, and just three miles south of here, it branches east over to Chicago, south to Memphis and New Orleans, and west to Texas and Mexico. It is an extremely important strategic location for bringing in products and redistributing them into the North American marketplace, especially agricultural products.”
It is reasonable to suggest that the development and growth of a foreign trade zone is a slow process. Only about half of the property has been transferred to private use so far. According to Bill, that process was due to finish in 2010. However, it is still ongoing with a current completion date set at 2020. This is the date at which, “all that land is expected to be transferred, and we have the ability to have an industrial park as it would be normally recognized.”
Notwithstanding the delays that have slowed the growth of FTZ #271, steady progress has been made and is ongoing, with genuine improvements to the facilities and infrastructure on offer to participating companies.
“It took a while, we got the railroad up and running and operating profitably. We got a foreign trade zone grant and overlaid all of the property at the depot with FTZ status. We have created the newest port district in the state of Illinois. Its territory overlaps all 2,900 acres of Savannah Depot Park. All of these are slow activities. We probably have another two to five years before we can raise the flag as a critical, important and ready infrastructure for large scale manufacturing and business operations. In the meantime, what we already do have is a significant capacity to warehouse, distribute and transport in and out materials that are required on the international market.”
While these gains may not be happening as quickly as expected, FTZ #271 has started to see an increase in the number and status of participating companies. FTZ #271 is active with eight individual businesses now using the general purpose zone warehousing and distribution facilities.
“We have become a Midwest storage and distribution hub for Japan’s largest freight forwarding company, Itochu Logistics. We provide just-in-time supply of critical imported parts for important local manufacturers – Elkay Manufacturing among them – while facilitating bulk shipments into the zone from foreign suppliers so that the economies of scale in shipping and the benefits of the zone deferral of duty reduce the cost of those key components to the U.S. manufacturer they are sold to.”
The development of a foreign trade zone, from inception to realization, is a painfully arduous and frustrating task. However, in the case of FTZ #271, it seems as though a concerted effort and focused planning are ensuring that this particular foreign trade zone is well placed to become a vital cog in the wheel of business in northwest Illinois.
“FTZ #271 has and continues to play a critical role in marshaling ‘the little engines that could’ at Savanna Depot Park. Those engines, pulling in the same direction will transform Savanna Depot Park into a world-class international foreign trade zone status industrial park, rail hub and port.”
While the immediate future of FTZ #271 is unclear, infrastructure improvements and burgeoning interest from international companies are solidifying Bill’s belief that FTZ #271 will be a success story. He acknowledges that it will be a long road, but the heavy lifting is being done and, in the long term, FTZ #271 will repay the faith that Bill has shown in it. “Getting that train assembled and started was never going to be instantaneous.” By the time of project completion, Bill says the project will have been running for twenty years. “By then, the trains that have been set in motion will have pulled Savanna Depot Park to the top of the development hill and, if we are right that our economy will continue to go global, FTZ #271 will be atop that hill bringing our region easy access to global resources and bringing international companies easy access to our region.”