Uncovering Cost Savings and Production Efficiencies Through the Section 321 Program09.14.20
Are you using the Section 321 Program to your advantage? It reduces costs and duties on international goods for U.S. manufacturers. In some instances, total savings may even equal up to tens of thousands of dollars per year.
By having inventory shipped directly from China (or another foreign country) to a fulfillment center in Mexico before inducting packages in the U.S., it eliminates 100 percent of duty costs without compromising shipment accuracy or delivery times. With such close proximity to the border, manufacturers benefit from the same quality assurance as if shipments were transported directly from a U.S.-based facility.
As defined by the U.S. Customs and Border Protection, Section 321(a)(2)C) of the Tariff Act of 1930 admits non-sensitive material and products with a retail sales value of $800 or less free of tax or duty. Those highest in demand are electronics, luxury and high-end products, and furniture. Qualifying conditions include:
- Shipments must be imported by one person on one day
- The importer must provide evidence of the value by an oral declaration or bill of lading
- Consolidated shipments to one consignee shall be treated as one importation
Additionally, manufacturers that benefit from the Section 321 Program also reduce warehouse and labor costs in Mexico (when compared to the U.S.). Companies can rely on supply chain models already in place that provide streamlined, cost-saving solutions and support a high quality of service and shipment accuracy.
Preparing for the Future of Manufacturing
Global manufacturing businesses have profited from nearshoring operations in Mexico for decades due to the cost value and convenience it provides. Companies appreciate Mexico’s close proximity, highly-trained, skilled workforce, lower labor cost, and reduced shipping expenses. These factors, in addition to the cost savings of the Section 321 Program, allow manufacturers to meet a rising fulfillment demand without facing disruptions in delivery services or transit times.
For example, if a U.S. company imports finished products from China, it’s paying normal duties equaling between two and five percent. When the shipment arrives at the U.S. processing facility, the products must then be unpacked, tested, repackaged for sale, and labeled for shipment. To circumvent these direct costs, manufacturers can ship inventory to Mexico and benefit from the Section 321 Program instead.
As outlined in a case study conducted by IVEMSA , labor costs for a 10-person fulfillment operation in Southern California equal $19/hour per person plus warehousing costs of approximately $1.00/square foot for a 10,000 square-foot space.
By taking advantage of the Section 321 Program, the same operation could benefit from a reduced labor cost of closer to a $3 hourly rate and reduced warehouse costs of $.45/square foot in Mexico. The result: a savings of tens of thousands of dollars.
Value of Working with a Shelter Services Company
Manufacturers that want to establish an e-commerce fulfillment center in Mexico and benefit from the Section 321 Program should work with an experienced shelter services company to save on costs and maximize production efficiencies.
As the industry continues to shift and the need for cost-efficient production expands, it’s important to keep up-to-date with the most viable option. While China has been the top choice for decades, trade and political discourse with the U.S. over the past several years have led manufacturers to explore alternatives. Whether they decide to make an immediate shift to Mexico or diversify their facilities, it’s been a strategic operational move for many.
For more information about the advantages of nearshoring operations in Mexico and the Section 321 Program, contact IVEMSA today.
Sources: https://www.cbp.gov/sites/default/files/assets/documents/2019-Sep/Section-321-Data-Pilot-vs-Entry-Type-86-Test_v1-1.pdf; https://www.cbp.gov/sites/default/files/assets/documents/2017-Aug/Trade%20Mod%20Section%20321-External%20Issue%20Paper.pdf