The role of foreign trade zones in pharmaceutical manufacturing success

What is a foreign trade zone (FTZ)?

In the U.S., foreign trade zones are areas located in or adjacent to ports of entry under the control of Customs and Border Protection (CBP) but considered outside CBP territory. In other words, products stored in these zones have technically not entered U.S. commerce, even though they are physically on U.S. soil. Merchandise can be moved in or out of FTZs for operations such as storage, assembly, manufacturing, and processing. Formal CBP entry procedures and duty payments are only required when the product enters CBP territory for domestic consumption. The FTZ program, established by the Foreign-Trade Zones Act of 1934, was designed to encourage U.S.-based operations and competitiveness by removing certain disincentives associated with domestic manufacturing.

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

The first FTZ opened in New York City in 1937 and was initially used by the nut industry. Nuts were shipped to the U.S. and housed in the FTZ until they lost “water weight,” reducing customs duties because they weighed less. For the pharmaceutical industry, FTZs offer a unique opportunity to manage costs and resources in a controlled environment, delivering tangible benefits for manufacturers and the patients who rely on their therapies.

By utilizing an FTZ, manufacturers can maintain a competitive edge in global markets, delivering more affordable and innovative products to patients in the United States. FTZs help lower costs, speed up delivery times, and improve regulatory compliance. These benefits are particularly valuable for pharmaceutical companies with complex manufacturing processes, strict supply chain requirements, and high-volume or high-value imported products.

Do manufacturers need to manage FTZ operations themselves? Why work with a third-party logistics (3PL) provider?

Manufacturers can partner with third-party logistics (3PL) companies to navigate the complexities of FTZs. A 3PL provider acts as an extension of the manufacturer’s business, handling tasks such as storage, receiving, and order fulfillment. These day-to-day operations can be cost-prohibitive or overly complex for many pharmaceutical manufacturers to manage independently. A reliable 3PL partner continuously assesses the commercial landscape to identify ways to better serve its clients.

Manufacturers with imported products should evaluate the benefits of FTZs, particularly those with high-volume or high-value goods. FTZs can be a valuable logistics solution at various stages of the pharmaceutical lifecycle, including clinical, commercial, and post-launch processes. Whether dealing with active pharmaceutical ingredients (API) or finished products, leveraging an FTZ can result in significant cost savings.

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

FTZs provide benefits at nearly every stage of the drug development and distribution process. Duties are imposed on a range of raw materials, APIs, and finished drug products, creating significant upfront costs for manufacturers. By using an FTZ, manufacturers can defer these duties until their products enter U.S. commerce. Additionally, FTZs allow manufacturers to store, warehouse, and re-label products pending FDA approval, mitigating delays caused by traditional import procedures. This capability reduces CBP and FDA release times, which typically range from one to seven days, and accelerates the process of getting products to market. FTZs also expedite exporting transit times to countries such as Canada and Latin America once products are approved.

What should manufacturers look for when evaluating an FTZ, 3PL, or distribution partner?

Flexibility and experience are key when selecting a 3PL provider or FTZ partner. The ideal partner will evaluate the manufacturer’s business holistically and provide insights to improve commercialization and supply chain strategies. A commitment to consistently high service levels is critical, especially when managing high volumes or costly products where loss is unacceptable. Certifications such as ISO 9001:2015 can indicate a provider’s dedication to continuous improvement and operational excellence.

Manufacturers should prioritize 3PL and distribution partners with a robust, standardized infrastructure capable of supporting global needs. Providers with deep expertise in the biopharmaceutical, device, and diagnostics space are better equipped to understand and address industry-specific challenges. Additionally, achieving and maintaining FTZ status requires strict compliance with regulations, documentation, and security requirements. The ideal partner should have a global footprint and the ability to integrate FTZ operations into a comprehensive supply chain strategy that aligns with the manufacturer’s commercialization goals.

The single most compelling reason to work with a 3PL provider offering FTZ services is the ability to get treatments into the hands of patients faster. By capitalizing on speed to market while effectively managing upfront costs, manufacturers can better serve patients and improve healthcare outcomes.