Author: Shashank Verma | Head Supply Chain & Order Management | Maier+Vidorno
First published in March 2016

Free Trade and Warehousing Zones (FTWZ)

You want to enter or grow the Indian market with your imported foreign products? Then efficient, fast, and flexible distribution in India is an absolute must and requires local warehousing and logistics management. Reliable distribution in India is based on the right choice of location, logistic partners, as well as the proper type of storing and shipment processing – especially considering the difficulties of India’s currently insufficient infrastructure.

Imported products – after being passed through customs – are usually stored in warehouses somewhere in India before being sold and shipped to the Indian customer. The available logistics infrastructure range from the highest international standards to very low standards, but with good management of your supply chain this can be handled. Some companies however choose a different supply chain solution, which is worth considering before choosing the own supply chain set up:

In India it is also possible to store imported products in Free Trade and Warehousing Zones (FTWZ) – an approach that has become very popular in other countries as well. FTWZs offer foreign companies exporting to India the possibility to store their products de facto in India – but on international soil.

What are Free Trade and Warehousing Zones?

FTWZs are mega trading hubs that comprise of excellent, state-of-the-art storage infrastructure, Container Freight Stations (CFS), rail connectivity, offices, banks, insurance corporations, and residential complexes for the workforce that is employed in FTWZs.

Storing products in FTWZs is generally very beneficial for foreign companies that export products to India and have to store them on-site in India before reaching the end customer. According to the Special Economic Zones (SEZ) Act from 2005 FTWZs are considered foreign territory within India. Two vital objectives of the SEZ concept are to generate employment and earn foreign exchange by attracting Foreign Direct Investment (FDI) in the manufacturing and services sector.

There are three Free Trade and Warehousing Zones in India. The largest FTWZ is in Khurja, close to the National Capital Region of Delhi. The other two are located near Mumbai and in Sricity, nearby Chennai.

FTWZs are equipped with state-of-the-art infrastructure for warehousing, and due to their central geographical location they are close to various professional and both regional and national logistics service providers. This is a huge advantage for ensuring reliable onward transport in India, as well as improving competition within the price structure and quality of providers available.

Benefits for foreign companies

Instead of storing imported goods in ‘regular’ warehouses in India, foreign companies can ship their products directly to one of the FTWZs without importing them to India immediately. Even though the prices for storing are usually higher compared to regular warehouses – and must be paid in foreign currencies (e.g. EUR, USD etc.) – FTWZs offer many advantages:

Distribution Time

Advantages

Less time between order and delivery because products are already stored in FTWZs close to India and, hence, international transport is no longer required

Disadvantages

Storage within FTWZ for up to two years, after which import of international transfer is required or import duties have to be paid in order to clear goods in Domestic Tariff Area (DTA)

Finances, Operational Costs

Advantages

Financial pressure on the Indian subsidiary is reduced because trading stock remains in the books of the foreign company as long as they are stored in FTWZ

Disadvantages

Prices for storing in FTWZ are usually higher compared to regular warehouses; charges must be paid in foreign currencies (e.g. EUR, USD etc.)

Currency Exchange Fluctuations

Advantages

Risk minimization due to reduced impact of currency fluctuation: possible fluctuation in exchange rates between time of import and time of local invoicing and calculation of final price is minimized; thus, exchange rate losses are minimized

Disadvantages

Since storage is only allowed for the period of two years, a close vigil on exchange rate needs to be maintained; exchange rate profits are minimized

Time Efficiency

Advantages

Shorter delivery periods due to around-the-clock customs handling; duration and demands for customs handling, however, do not differ from regular clearance

Duty Payments

Advantages

Deferred duty payment: no customs charges applicable upon shipment to Indian FTWZ; customs duties are levied only immediately before de facto import to India – that is after the products have been sold and are ready to be transferred out of the FTWZ and imported into India

Export

Advantages

Unsold stock can be customs free re-exported –– as internal transfer of goods; this is especially valuable when having a large product portfolio and only little market experience

Services within FTWZ

Advantages

Labeling, packaging, re-packaging, or assembly of products is possible within FTWZs – and these services are not subject to Service Tax; especially for products with MRP Maximum Retail Labeling requirements this is very advantageous

Disadvantages

Services are charged in Foreign currency and for higher fees compared to other facilities

Facilities, Infrastructure

Advantages

Individually tailored warehousing and logistics solutions for all sorts of products, as well as excellent infrastructure within FTWZs and very good connection for further transport; E-payment is possible

The Future

In addition to the existing Free Trade and Warehousing Zones in Mumbai, Chennai and Khurja there are further FTWZs planned – to promote international trade in and with India. For example, export-oriented companies can use FTWZs in India as international storing and distribution hubs to handle the entire Asian market.

M+V has developed solutions that ensure your Indian sales force can concentrate 100% on what is really important: selling and growing your business in India. M+V’s experienced professionals carry out all necessary business support functions – accounting, administration, finance, HR, sales order processing, logistics and supply chain management – supported by a country-wide office and warehousing network.

Contact us to help you work out how to maximise your growth in India.