The role of foreign trade zones in pharmaceutical manufacturing success

Q: What is a foreign trade zone (FTZ)?

Pham: In the United States, foreign trade zones are areas in or next to ports of entry under the control of Customs and Border Protection (CBP) but considered outside CPB territory. In other words, product stored in this area has technically not entered U.S. commerce, although it is on U.S. soil. Merchandise may be moved in or out of FTZs for operations, including storage, assembly, manufacturing and processing. The usual formal CBP entry procedures and duty payments are not required until product enters CBP territory for domestic consumption. The FTZ program, created by the Foreign-Trade Zones Act of 1934, encourages U.S.-based operations and competitiveness by removing certain disincentives associated with manufacturing in the United States.

Q: Why are FTZs more important today than ever for pharmaceutical manufacturers?

Pham: The first FTZ opened in New York City in 1937 and was used by the nut industry. Nuts would be shipped to the U.S. and housed in the FTZ until they lost “water weight,” thus leading to lower customs duties because they weighed less. For the pharmaceutical industry, the ability to manage costs and resources in a controlled zone has tangible benefits for both manufacturers and the patients benefitting from their therapy.

Through use of an FTZ, manufacturers will be positioned to better maintain their competitive edge in global markets, delivering more affordable and innovative products to patients in the United States. An FTZ helps lower costs, speed delivery times and better manage regulatory compliance. These benefits are important for pharmaceutical companies with strict supply chain needs due to a complex manufacturing process, and those with high volume and/or dollar value of imported products.

Q: Do I need to learn how to apply for, manage and operate an FTZ? Why should I work with one?

Pham: Manufacturers can turn to third-party logistics (3PL) companies to navigate them through FTZs. A 3PL partner acts as an extension of the manufacturer’s business, helping with storage, receiving and fulfilling orders, for example—the day-to-day operations and services that, for many pharmaceutical manufacturers, would be cost-prohibitive or complex to manage. A good 3PL partner should always be assessing the commercial landscape for ways to better serve their partners.

Manufacturers with any imported products should evaluate the benefits of an FTZ, but these benefits are typically targeted to a specific segment—for example, those with high-volume or high-value product. Manufacturers should evaluate FTZs as a logistics solution in the clinical, commercial, or post-launch process, as part of transition planning. Whether API or finished product, there can be significant cost savings by leveraging an FTZ.

Q: How do FTZs help manufacturers manage costs, reduce risk and increase speed-to-therapy for patients?

Pham: FTZs are beneficial to manufacturers at nearly every stage of the drug development and distribution process. Duties are imposed on a range of raw materials, active pharmaceutical ingredients (API), and finished drug product. This can be a huge upfront cost issue for many manufacturers. By leveraging an FTZ, drug makers can defer duties until their product enters U.S. commerce. Manufacturers do not receive full specifications for labeling requirements until the drug is approved by the FDA, and face gaps there with the need for speed to market upon approval. In a traditional import environment, CBP and the FDA release time is between one and seven days. By using an FTZ, products pending FDA approval can be stored, warehoused and re-labeled once they receive final label guidance and approval, mitigating the release time through the re-labeling activity a 3PL can perform for them. This allows quicker entry into U.S. commerce and expedites exporting transit times to countries such as Canada and Latin America once approved.

Q: What should manufacturers be looking for when evaluating an FTZ, 3PL or distribution partner?

Pham: Flexibility and experience are key when determining the best 3PL provider and FTZ. The ideal partner will evaluate the manufacturers’ business holistically and provide insights that can improve the commercialization and supply chain plans. Commitment to consistently high service levels is critical when managing high volumes of product or costly products for which loss is unacceptable. Finding a 3PL with certifications that speak to dedication to continuous improvement and excellence—like the ISO 9001:2015 certification—can give manufacturers confidence they are working with an experienced logistics provider.

Manufacturers should prioritize selecting 3PL and distribution partners with a robust, standardized infrastructure to support global needs that are experienced with the manufacturer’s evolving needs. 3PL providers need to have that deeper knowledge of the biopharmaceutical, device and diagnostics space to truly understand the gaps and pain points.

It’s important to evaluate the underlying structure of 3PL companies, how many clients have transitioned from them and their knowledge of the industry. Achieving and maintaining FTZ status requires continuous compliance with strict regulations, documentation and security requirements. Given the rapid changes occurring in today’s healthcare market, FTZ operators and 3PL companies have to be at the forefront of not only the latest technologies, but also the latest developments from global governments. The ideal partner should have a global footprint and the ability to facilitate an integrated supply chain strategy with the use of an FTZ, if applicable, that ties in with a manufacturer’s commercialization plan.

The single most compelling reason to work with a 3PL provider offering FTZ is the ability to get treatments into the hands of patients faster. At the end of the day, capitalizing on speed to market while effectively managing upfront costs are both vehicles to better serve patients.