Economy and Economic Development and Manufacturing & Technology and Transportation, Distribution & Logistics

Trade zone gets bigger: Expansion should help Duke, Anderson lure tenants who export, import goods

June 6, 2005

An expansion of Indianapolis' foreign trade zone to include Duke Realty Corp.'s west-side industrial parks might not result in a flood of new tenants for the local developer, but it's expected to help economic development officials lure firms that ship goods by truck and rail.

Officials of Duke and central Indiana economic development agencies were to announce on June 3 that the local foreign trade zone has been expanded from 5,500 acres around the Indianapolis International Airport to 7,100 acres. Duke owns most of the 1,600 acres that were added.

Duke's part of the zone includes nearly 15 million square feet of existing industrial buildings and 113 acres of undeveloped land in Park 100, Park Fletcher and Plainfield Business Park.

The city of Anderson gains 620 acres in the zone, and a handful of private landowners in the three business parks also elected to be included, said Kent Ebbing, general manager of the Indianapolis foreign trade zone.

The FTZ provides tax benefits for companies that import and export large quantities of goods. For Duke, it's another way to attract tenants to its buildings. For central Indiana, economic development officials hope the expanded zone will boost the area's reputation as one of the country's most important logistics and distribution hubs.

"It's another tool in our toolbox," said Jeb Conrad, executive director of the Indy Partnership.

Having readily available buildings and land in an FTZ won't be a big deal for some companies, but it may help land more of the large-scale distribution centers that central Indiana has become known for, Conrad said.

The FTZ around the airport is larger than the expansion area and mainly benefits companies that have goods flown in from other countries, Ebbing said. Adding Duke's portfolio to the zone will expand the FTZ's benefits to companies that receive goods that arrive in the country by ship and come to central Indiana via rail or truck.

It's not clear how many tenants might take advantage of the FTZ status. Demand might not be strong today, but at least one local industrial broker expects it to increase in coming years.

"I think it's becoming much more of an issue of awareness for [certain] kinds of tenants," said Pat Lindley, principal and executive vice president of locally based Colliers Turley Martin Tucker.

Several factors are converging to make FTZs more attractive, Lindley said. More companies are using third-party logistics companies, which could benefit from the tax savings provided in an FTZ. The consolidation of distribution centers and the increasingly global economy may also make such zones more attractive, he said.

FTZs allow companies to defer paying duties on imported goods until they are sold to the end user. That means companies that import parts and assemble them in an FTZ pay tariffs on the finished product, not on the individual parts. If the products are assembled in an FTZ from imported parts and then exported to another country, a company may avoid paying the tariffs altogether.

The zones also provide other benefits, said Thurman Walker, local branch manager for Schenker AG, a Germany-based global logistics company. Schenker has four local facilities, one of them an FTZ subzone in a Duke building, encompassing about 320,000 square feet of space.

Increasingly, companies are considering FTZs to ensure greater reliability in their supply chain for goods coming from overseas. Companies located in FTZs may utilize a shortened and less expensive process for clearance through U.S. Customs, Walker said. For perishable or temperature-sensitive goods, the time saved can be crucial.

FTZs can also contribute to cash flow for companies that warehouse goods from overseas, such as spare equipment parts, he said. Because the zones are duty-free, companies don't have to pay duties on the parts until they are needed.

From a national perspective, the goal of FTZs is to encourage companies to use U.S. labor for at least part of their manufacturing and distribution processes by lowering the costs of doing business in the United States, Ebbing said.

The zones are reviewed every five years to explore adding land to the zone, he said. The local zone a few years ago approached local developers about adding their land and buildings to the zone. Duke is the only major local developer that elected to go through the lengthy and costly process of adding its buildings and undeveloped land, Ebbing said.

Duke declined to divulge how much it's spending on the FTZ status, but Charlie Podell, the company's vice president of leasing, called the cost substantial. It includes setup fees plus a yearly per-acre fee to maintain FTZ status. At least in the near term, the company has no plans to pass those costs on to tenants who take advantage of the FTZ status, he said.

"It's a competitive world," Podell said. "If [companies] need it, we're hoping they'll choose us."

For tenants who do want to take advantage of the FTZ status, locating in one of Duke's buildings could save time and money. Any company can apply to have its facilities designated as an FTZ subzone, but that can take nine to 12 months, Ebbing said. Locating in a building already in the FTZ shortens the process to less than six months.

There are still costs involved for the tenant, but for companies that import and export mass quantities of goods, being in an FTZ can pay off, said Katie Culp, senior vice president and an economic incentives specialist at CTMT.

"[Companies] who can benefit from it benefit greatly," she said. But with costs that can run into the tens of thousands of dollars, "the benefit has to exceed the cost of maintaining it."
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