 Hi, welcome to International Hawaii on Think Tech, where we showcase local import and export companies and the trade industry. I'm your host, Cindy Matsuki, and today we're chatting with Scott Yoshida, Warehouse Manager at the Foreign Trade Zone, yay. Full disclosure, I work with Scott at the Foreign Trade Zone, but he's got tons of experience in this industry. So I wanted to bring him on because we never really featured the foreign trade zone yet and what the benefits we offer. So thanks for joining us, Scott. Thank you. Can you briefly explain to our viewers what the foreign trade zone is? You know, I think a good place to start is foreign trade zones deal with goods that are imported and exported from the state of Hawaii. In that process, the first thing we really need to understand is the role of duty and tariffs because it's all about duty and tariffs. That's what the benefits are. When you look at goods coming into the state that are imported into our islands, everything has a classification and based on that classification, there's a duty rate. Using the foreign trade zone, you're able to defer the duty rate or take advantage of a customs benefit that allows for businesses to store goods without paying the duty and taxes until they find a market for the goods and they are ready to take the goods out from a warehouse type of environment and pay the duty and taxes at that point. So it's really area, the foreign trade zone really is an area to be able to defer duty and taxes for storage. And I kept with cash flow. Cash flow. Contrary to what everybody thinks, we're not an area where you're forced to use the foreign trade zone. We're purely optional. We're actually kind of like the economic development arm that help businesses that are not quite set up not quite set up, ready for opening their own warehouse and the cost to incur all the costs involved in developing a warehouse. So we're kind of like an incubator, a step before that, where businesses can utilize our services on a volume or space available basis. So that means that your charges for usage of a foreign trade zone is not a fixed cost. It's a variable cost. And it's based on the amount of volume that's brought into our warehouse. And as goods are removed, your cost decreases. That's great. That's a good benefit for small businesses who don't have cash to just be out laying every month. So I guess, when people often ask, when we go through a question and answer period, people ask, okay, how do I get started? What do I need to do to introduce product into your warehouse? I always tell them that there are three components to setting up storage with us. One primary one is there's customs documentation. That comes in a form called a CF214. That form is a customs form. And it basically asks permission from US Customs to move goods in bond before it's cleared into our warehouse. With that form, you submit a commercial invoice, a packing list and a bill of lady. So that creates kind of like an introduction package for customs, the customs broker and the foreign trade zone to look at the goods to determine whether or not it's a good fit for our warehouse. There are certain restrictions. We don't allow explosives. We don't allow contraband. There are pornography, certain types of garment processes are limited. So it's not an open invitation to any kind of store. Whatever. Especially like chemicals. We're not set up to handle chemicals because you have to have some expertise in handling chemicals. So there are some limitations to what we can and cannot do. But basically those three documents which is your government document, which is the 214 and then your shipping documents which is your commercial invoice packing list and bill of lady create the information required for us to generate storage. Based on that, when that's submitted you're gonna submit a set of those documents to your broker. Cause your broker, your customs broker will provide information to you as to what the duty rate on an item is, what the cost would be. They're the ones that handle the clearance to enter the goods into commerce. A set is submitted to us so that we know what's coming into the warehouse. And your customs broker will typically submit that set, same set over to US Customs so that US Customs is aware of what's coming in and they can handle appropriately the flow of how the documents should move. When those documents, oh, go ahead, I'm sorry. No, no, no, just to clarify, when you say when a product is cleared that means once the duty is paid, right? To customs and border protection. That's correct. So, going back to what happens after you submit the forms to us, we review the forms and typically we assign a lot number or a tracking number, we call it a zone lot number. And that's a five-digit number that's used to track the goods while it's in our zone. It's only for our usage. It doesn't have anything to do with official assignment of number to your goods. It's only tracking, internal tracking mechanism for us. Once the zone lot number has been assigned, the form is then kicked back to your customs broker and then they take that with the 214 application and submit it to US Customs. US Customs reviews it and permits it or will sign off or endorse it to say that the document or the shipment can move in bond in customs bond into the foreign trade zone. And what that basically means, it's allowing goods to be transferred from the ship into our warehouse without having cleared where duty and taxes have been paid. And the item, so technically the item still cannot be sold into commerce. It's in foreign status. Got it. Now that brings- Looks like it hasn't arrived yet. It hasn't arrived yet. And so that brings the big statement about what is a foreign trade zone? It's an area outside of the United States but still under customs jurisdiction. So goods entering our warehouse, technically it's like a duty free zone where duty and taxes have not been collected. So the goods cannot free flow out into commerce. It has to be controlled in a warehouse where all items are accounted for. Got it. So we look at those documents and usually the packing list is a driver for us to create a database. And we create that database in our receiving system. So the warehouse or the operation that we provide is pretty, it's a full service setup where we create a database, we receive the goods by skew or item. We put it into inventory so that a customer or importer is able to reference a specific item and say, I need 10 cases of this item, 10 cases of this item. And we pull it and put it onto the loading zone. So it's really a full service warehouse operation but it's limited to bulk products. Meaning that we don't break down cartons, we don't do less than full carton loads. It's limited to full case slots. So like you couldn't ask for, okay, can I get one thing I'd like to do? Or can I get one thing out of this box or out of the carton? So I don't really call us a distribution center because in a distribution center, I think people are accustomed to being able to open and take and pull out certain items and create a custom boxing. Everything that we do is governed by US customs. So we have to report any type of manipulation that we do. So if a box is opened, we have to request from customs to say, can I open a box? And on that form you'll ask for what purpose? To sort or inspect or do. So it's all very structured and organized so that we account for all the goods that come and go out of our zone. What kind of companies use the foreign trade zone? You know, just about anybody who imports and exports or manufactures can use the foreign trade. It's not limited, you know, we have footwear, we have cosmetics, we have motorcycles and mopeds, motor scooters, we have obviously gift items like magnets for tourist sales. You know, and that's in the thousands. You get a case with so many growths. You know, we don't allow people to open up and pull a dozen each out because that would be a tracking nightmare. So, you know, an importer would have to take out a full case. So it is kind of a specialized bulk storage warehouse facility that we offer. We also have a temperature-controlled room. It's just an air-conditioned space that we try to maintain a set temperature probably in a range of about 65 degrees that importers bring in wine and sake. That makes sense. And they're able to draw this again by full case slots. So, retailing and selling out of a foreign trade zone is prohibited. So all the sales and exchange of cash has to be done outside of the foreign trade zone. But we're the area that actually creates the orders for you to take out and then to market. Most of the companies that use us have a smaller distribution warehouse that allows them to open boxes and segregate and sort as required. So utilizing the foreign trade zone doesn't negate the need for another facility to help break down orders. It just allows you to store your bulk items here and it allows you to have a smaller space. So, you know, we have office spaces also in the foreign trade zone and people are able to operate out of their office. They're able to take some of their product into their office and create the orders that are necessary and have UPS or FedEx pick up from their office as kind of a fulfillment or distribution area. And the warehouse side of it is the full case slots where we provide that for our clients. So in their offices, they can open up their cases and put together different products together. And, you know, my operation here at the foreign trade zone is limited. It's Monday through Friday from 7.30 to four o'clock. But in the office spaces, you're free to come and go. You have access badge that will give you ability to come in at any time. 24-7. 24-7, it's air conditioned. So people are able to operate out of their offices. Nice. We are gonna take a quick break. We're watching International Hawaii on Think Tech Hawaii. My guest today is Scott Yoshida with the Foreign Trade Zone and we will be right back. Aloha, I'm Dan Leif. I go by Fig because I was an Air Force fighter pilot for 33 years and you have to have a nickname. I get to host on Think Tech Hawaii two shows. Figments, the power of imagination and figments on reality. The power of imagination introduces you to some of my incredible friends and their life experiences, astronauts, war heroes, Hollywood writers, you name it, they're on it and you'll be inspired and entertained. In on reality, I'll give you something hard to find, non-political commentary on today's events. That's right, non-political because the vitriol doesn't help folks. So figments, the power of imagination, figments, on reality, both on Think Tech Hawaii. Hi, welcome back. This is International Hawaii on Think Tech and my guest today is Scott Yoshida with the Foreign Trade Zone and we're talking about the benefits of the Foreign Trade Zone for small companies. And I also wanted to ask Scott, like how did you get started at the Foreign Trade Zone? Like you've been here for a while, right? Just about 20 years now. Wow, what were you doing before? Like how did you get started at the Foreign Trade Zone? You know, my background has always been in warehousing. Although I started out as a sales rep for a company and then you start understanding the supply chain and how the supply chain impacts what you're able to bring to market. From the supply, from being a sales rep, I moved into a warehouse operation for a local office supply company. We're also a major set bathroom tissue distributor for Kimberly Clark. So we were doing quite a bit of freight coming in but not a whole lot of important export. I left the warehouse industry and then I went into trucking. I was involved a general manager for a trucking company that we moved all of the freight, the cargo, the containerized cargo from at the time it was matching and horizon lines to young brothers and out to the community. From there, the opportunity to join the state as a foreign trade zone operations person became available and fortunately, my background qualified me to apply for that position and have been here and enjoyed it. It's been a very fruitful endeavor. That's great. So going back to my background, I guess when you understand the flow of movement of goods coming into our state, you understand that containerized goods goes to the peer and then from the peer, you have to hire a trucker. The trucker needs to go in there and have interchange agreement with Madsen and horizon lines or Pasha group and Madsen right now. And the interchange agreement says, I agree to move these boxes with chassis to a customer and back. I'll be responsible for the items. So an importer has to determine who their trucker is as select the trucker and usually a customer's broker will guide you along on who to select and whose rates are favorable or who's able to move containers as needed. So when you retain a trucker and you notify the shipping company who's the trucker, the goods are then released to that trucker. So there is that understanding that they'll be the ones hauling your container away and bringing it back into peer. Wow. There's so many steps. I feel like there's so many things that could go wrong. You know, I'm kind of jumping around and I think some of the things the highlights that I want to point out, when you hire a trucker, they use a lot of terminology and acronyms like a spot rate. A spot rate is to take a container and park it in the area which is called a container spot. And then you're able to devan the goods and then the trucker will come back, hook up to the container and take it back to the peer for you. Then a trucker might say, oh, is this a live load? That means the container comes to your facility and the trucker stands by while the goods are being offloaded. And that's like a different rate. And that's a different rate. You have standby charges, but often the facilities are limiting. So your warehouse might not have the space to spot a 40 foot container. Got it. That brings you back to the foreign trade zone. Why we're so important? Because we always have space. You can bring a container here and then we can devan it for you and put it away and you can pull it as you need it. So it kind of all just flows together. That's great. What could go wrong when importing? Like what is your worst story that you've heard about importing gone wrong or something happening to somebody's shipment? You know, I guess I wanna say about pretty close to 10 years ago, the foreign trade zone was also the container examination station for the state of Hawaii. And basically that meant that we would handle containers that customs wanted to inspect. So we got very firsthand knowledge of what customs is looking for or why they would seize a container for inspection. So when a container docks into our state, there's a couple of different types of exams that customs looks at. One is they do a spot check and a spot check usually involves a vacus exam or a gamma ray exam where they take the container and they x-ray the contents of the container for any anomalies. So it's real important that the declaration that you provide customs on the packing list and commercial invoice is comprehensive because they look at that to say, hey, these are what the item says in here, but I see something in this container that doesn't appear. That triggers an exam. And that exam is at the importer's expense. So it could involve quite a bit of cost because then the goods are taken over to the examination station, which is currently island movers and the goods are revamped, unloaded until they can, until customs feels assured that they identified the item and they're good to go. Now, customs also has ag implications where they do ag exams. So there's a variety of different functions that CBP or customs has and what they might be looking for. Among these are FDA requirements. That's food and drug administration. So using that involves inspection on labeling and marking. Then there's regular customs that looks also at labeling country of origin, labeling that involve product ingredients or specifications. And then you have, I mentioned FDA, you have ag exams. So you can imagine during Christmas when all the Christmas trees come in, they go through and often what exam involves in a Christmas tree exam is they put a sheet of tarp down and they just bang the tree to see what falls out. Now, some of the nightmares I've seen is maybe about, again, 10 years ago when we were actively involved in the container exam, there's a wood boring beetle that came out of China. It's not a new item into the state, but it can be very devastating. And that was in all these bamboo products, it just ate through a container of chopsticks. And it just that short one month or two month in transit, it gets to be a nightmare. So as soon as that happens, the container is resealed, the import fades for, it's either gonna be sent back or it's gonna be fumigated. Now, that's, you can imagine the cost involved in fumigating, putting a container and using methyl bromide to try to kill or eradicate any foreign species that comes in here, but usually goods have to be fumigated prior to coming into the island. So often, there is a chance that it gets... Something survives. Yes. So what is like an average cost if your container got pulled aside by CBP? Like what would it cost an importer? Say if they just went through it and they okayed it. So they didn't really hold it for long. What could it cost you? It could cost anywhere from a couple of hundred bucks or a couple of thousand dollars depending on, because imagine you order your product, someone loads it. It comes to Hawaii and customs says I wanna look at it. So they offload it so customs can do an inspection. Then they have to reload it again so that it can go to your warehouse. So that process for pulling it from the pier and offloading it so that customs can inspect it. And then to reload it back up is a cost that the importer is responsible for. Wow. So even if everything is fine. Even if everything is fine. That's horrible. Now, I guess it's real important. Again, the role of a customs broker is to help run interference on a situation like that. Oh, so the customs broker would be working with CBP. That would be the preference for CBP on your date on your behalf. Emotion, my product, what's taking so long? Why is this happening? If you use a customs broker, at least some of that emotion is removed. And it makes it a lot easier dealing with CBP or for the CBP officers to deal with that whole process. Because it is a challenge. Yeah. So it's super important for importers to have a customs broker. That's the message that I want to set out is that if someone were to ask me what would be the steps or how do I start to use a foreign trade zone? The first thing would be to gather all your costs. That's your shipping costs, your production costs. And then to take that information and go to see a customs broker so that they can tell you what the clearance or the entry, the duty costs are so that you have a clear understanding of your full cost of goods of your product. It's not just the cost to put the product together or manufacture a product. It's actually the cost involved to bring your product to market. Especially in Hawaii. Especially in Hawaii. So to understand, I guess, your shipping costs, that's trucking fees also included. Got it. And how do they determine what the cost is on a container? It's usually driven by the commodity. What are you shipping? And the reason why I say that is like if you ship a container of steel, there's a specific rate for that because they can't do it purely on weight. Because if you then also ship, would the cost for a container of steel be the same cost as a container of cotton? No, obviously there's gonna be a different charge for the different rates of what the commodities are. So it's important that you meet with a broker so that you can go over all of these things and you know exactly what to share when you're setting up a new product or trying to find out, bring a new product into market. And then if people wanna start using the foreign trade zone should they just in touch with you and tell you what they think? The first step in that would be to get your three shipping documents together. I need a copy of your bill of lading, your packing list and commercial invoice. And then to schedule appointment with me or any of our people here at Cindy or Tsurumi Hamasu who's our foreign trade zone representative, any of us can review what you're bringing in to determine and give you an idea of what it would cost to bring the product into the foreign trade zone. Now you're gonna learn a lot of new acronyms like FAK, freight all kinds. Generally that's what we look at. Although we have a specific rate for motorcycles, we have a specific rate for alcohol and tobacco. We have a specific rate for... But then all that stuff, you'll go over with them, right? That's what I mean to go over once you bring all the packing information over and we can be... Okay, we're gonna have to leave it there. I know you have so much more information to share but we're gonna have to wrap this up. You've been watching International Hawaii on Think Tech. Today we've been chatting with Scott Yoshida, warehouse manager at Hawaii's foreign trade zone number nine. Thank you so much Scott. It's been awesome chatting with you. Thank you for having me. And thank you so much to our viewers for tuning in. I'm Cindy Matsuki. We'll be back in two weeks with another edition of International Hawaii. See you next time.