Shortly after Doug Jackson set up a Foreign Trade Zone (FTZ) at Storm Creek, the Eagan-based apparel company he founded, he made a bold prediction: The company would grow by 40% that year. “We’re going to have more money, so we’re going to grow more,” he remembers thinking.
By forming an FTZ, Storm Creek stopped paying import duties the moment goods arrived from overseas and started paying them when the product shipped to a customer, often months later. Money that had been tied up in duties paid up front went into inventory, translating into that growth surge.
We hit that goal,” Jackson says. “With a new bank line we were able to manage the cost of establishing an FTZ, and that gave us the ability to buy more inventory and go after more business.”
Here’s how an FTZ works: Normally, a company pays U.S. import duties as soon as goods cross the border. A Foreign Trade Zone lets the company set up a secured area inside its own warehouse or plant that the government treats as if it were outside the U.S. Goods can sit there, untaxed, until they leave the zone. If they’re sold to a U.S. customer, the company pays the duty then, not before. If they’re shipped to another country, no U.S. duty is owed.
David Heyer, the Minnesota Department of Employment and Economic Development’s Foreign Trade Zone administrator for the Minneapolis-St. Paul area, says the program is dynamic. The Minneapolis-St. Paul Area FTZ deactivated two zones in 2025 but added four new zones that year. He thinks FTZs could help more importers and manufacturers, especially since 26% of respondents cited duties and tariffs as a top concern in Enterprise Minnesota’s most recent State of Manufacturing® survey.
Deferred tariffs boost cash flow
AGCO, an agricultural equipment manufacturer in Jackson, Minn., began operating an FTZ in 2018, says Bradley Dick, the company’s FTZ administrator and materials supervisor. AGCO’s nearly 1,000 employees use an array of international parts to build high-horsepower tractors and application equipment for brands such as Fendt and Massey Ferguson.
The lead time to build the equipment means those parts need to be on hand well in advance of production. “We’re looking out 18 months in advance,” Dick says, and deferring duty payment for that period is an enormous boost to cash flow.
For companies holding significant inventory, the savings can be significant. Tariffs currently average 35% on Storm Creek’s imports from China and Vietnam. Every $1 million is $350,000 in deferred payment, Jackson says. That’s money that stays in the business instead of going to customs while goods sit unsold.
There’s an even bigger advantage when products are ultimately sold outside the U.S. Jackson says Storm Creek often ships orders directly out of his FTZ to Canadian customers. “The goods come in, and they’re in our FTZ,” he says. “So if I get an order from Canada, I can ship it from here and never end up importing the goods into the U.S.” He pays Canadian duties, not the 32% U.S. rate his knit garments would otherwise carry.
FTZs also give businesses time to secure buyers, further reducing their need for cash. “You can hold it in your inventory duty-free for as long as you need,” Heyer says. That’s huge for companies that import and stock inventory for annual events like the Fourth of July, Halloween, Christmas, and back-to-school, he says.
Heyer cites two other benefits of FTZs. Importers can consolidate multiple inbound shipments into one weekly customs entry, effectively capping the merchandising processing fee at around $634 per week. “For frequent importers, this replaces hundreds of per-shipment fees and saves thousands of dollars annually.”
The program also allows manufacturers to avoid customs duties on raw materials that become scrap or waste during production. If you operate outside an FTZ, you pay duties on all imported materials — even the parts that get thrown away. In an FTZ, duties are only paid on the finished goods that actually enter the U.S. market.
Weighing costs
The benefits are enormous for certain companies, but setup demands legal work, employee background checks, inventory-tracking software, and physical security upgrades, including video monitoring and security fencing with badge-access gates. Items must be delivered to the area by a bonded carrier.
Additional employees, vendors, or both, are often needed to ensure compliance. Dick runs AGCO’s FTZ using software from Thomson Reuters and a brokerage arrangement with UPS.
Those hurdles almost kept Storm Creek’s Jackson from forming an FTZ. “Every time I looked into it, I thought we couldn’t afford it,” he says, noting that applying involves volumes of paperwork and requires legal counsel, which is why having that additional line of credit from the bank was necessary to make it possible.
Ongoing costs are also significant. Annual fees in the Minneapolis-St. Paul zone run $7,825 for warehousing operations and $15,650 for manufacturers, on top of a one-time $1,000 non-refundable application fee.
The real hurdle, though, is discipline. Both Jackson and Dick describe rigorous inventory practices required by the program. Jackson emphasizes that point to his team. He knows that other companies’ FTZs have been shut down because of inventory mismanagement; if that should happen, “we have to come up with a bunch of money right away,” he says.
That added discipline has benefits beyond maintaining compliance. “Our job is to be really good at managing our inventory, which every business owner wants anyway,” Jackson says.
Not every importer will benefit enough to offset the costs associated with FTZs. But for manufacturers who hold inventory for months, order ahead of demand, or export internationally, an FTZ can turn a significant cost of doing business into a substantial financing advantage. The question is simple, says Dick: “How long does your inventory sit on the shelf?” If the answer is longer than a few weeks, a Foreign Trade Zone might be worth it.
Return to the Fall 2026 issue of Enterprise Minnesota® magazine.
