GoPro US FTZ Program - Savings Feasibility & Computation

2016 NAFTZ Annual Conference – Orlando, FL

Jeremiah Pomerleau

Senior Manager, Transportation & Trade Compliance

Importers – Don’t sit still!

Wool Protection…

Baa! Did he really say “Wool”?

Importer’s Secret Weapon

Baa! Duty is no match for me!

This Sheep Has Skills…

• MPF Minimization

• CHB Reduction

Customs & Brokerage Fees

Reduction

• Exports

• Product ScrapingDuty

Avoidance•Duty Deferral – One-time

•Duty Deferral – Continual Cash Flow

Improvement

• Inverted Tariff BenefitCustoms

Duty Reduction

GoPro Transportation & Trade Team

AMR Supply Chain Overview

FTZ Feasibility

FTZ Savings Computation

Recommendations

Agenda

GoPro Transportation & Trade Compliance Team

GoPro Transportation & Trade Compliance Team

$30-35M Freight

1.5M+ Transactions

25 INTL Trade Lanes

$12-16M Duty & Tax

2000 SKUs / 100+HS

Transportation – Global inbound, outbound and inter-company for all modes

Import Trade Compliance – Global

Export Trade Compliance – US centric

Freight Bill Audit & Payment – Global

Logistics & Trade Rule! Jeremiah Pomerleau

Helen Hwang

AMR Postponement Supply Chain – Inbound

Ocean Freight (SEA)

Transit: 40/40HC service @ 24 Days DTD

Components for Lower-box Assemblies (LBA)

Finished Goods Accessories (ACC)

International Air Freight (IAF)

Transit: 3 Services @ 1.5 to 4 Days DTD

Bulk Cameras only (CAM)

HKG->LGB

GoPro DC (FTZ site – ModusLink, Inc.)

Riverside, CA

Futian FTZ

Hong KongX-Dock

HKG

Intra-China Logistics Flow

CAM/LBA

AMR Postponement Supply Chain – Outbound (2014)

Expected GoLive 10/2014 – Actual 12/2014

Delayed approval - Direct Delivery

IT challenges – Zone processing

B2B Fulfillment Center (FTZ #244) – Riverside, CA

B2C Fulfillment Center (non-bonded) – Fremont, CA

In-Region Final Assembly – LBA + CAM

Inverted tariff benefit aligned with regional kitting/final assembly strategy Duty free status of core product – Camera

Dutiable retail box components

Supported inbound transportation strategy High value cameras imports via air freight

Low value components via sea freight

Frequency and value of imports – MPF/CHB! JIT imports - Cameras

Why FTZ made sense for GoPro…

MPF and Brokerage Fees Reduction

Products enter US commerce immediately and MPF and brokerage (CHB) fees assessed on a per shipment basis

FTZImport Product Flow to FTZ

Imports flow to non-FTZ DC or direct to US Commerce

Products enter US commerce once shipped from the FTZ and MPF and brokerage fees are paid weekly

MPF Computation

FORMULA: $485 – (AVG entry value * MPF Fee * Number of Entries Per Week) = Weekly MPF Variance

Annual entry volume 988

Operating weeks 52

AVG entries/week 19

AVG entry value $80,000

Import Entry Profile

Fee 0.3464%

MIN Fee $25

MAX Fee $485

Value MAX $140,012

MPF Tariff Structure

Current FTZ

MPF $ per entry $277.12 -

MPF $ per week $5,265.28 $485.00

MPF $ per year $273,794.56 $25,220.00

MPF VAR $ - Week $0.00 ($4,780.28)

MPF VAR $ - Year $0.00 ($248,574.56)

MPF VAR % -91%

*Computed based on 2014 import data

CHB Computation

FORMULA: Negotiated CHB Fee - (Negotiated CHB Fee * # of entries per week) = Weekly CHB Variance

Annual entry volume 988

Operating weeks 52

AVG entries/week 19

AVG # HTS lines/entry 6

AVG # HTS lines/week 22

Import Profile

Fee (inclusive of 3 HTS) $70.00

Additional HTS lines $5.00

CHB Tariff

Current FTZ

CHB $ per entry $85.00 -

CHB $ per week $1,615.00 $165.00

CHB $ per year $83,980.00 $8,580.00

CHB VAR $ - Week $0.00 ($1,450.00)

CHB VAR $ - Year $0.00 ($75,400.00)

CHB VAR % -90%

Inverted Tariff Benefit

Finished Camera = 0%!!

Part C 3% Duty

Part B

5.5% Duty

Part A

8% Duty

FTZ

Part C

Part B

Part A

Component parts received in

FTZ inventory with no duty

payable to US Customs. Parts

are assembled into finished

good (e.g. manufacturing

process). Duty is payable at

the finished good rate upon

entering US commerce

through order fulfillment.

Bulk Cameras / Components

Inverted Tariff ComputationFORMULA: (Finished Good Value * Finished Duty Rate) - (Component Part Values * Individual Duty Rates) = Tariff Variance

Camera Model Black Sellable units 1,450,000

Value $156.46 Current Duty $406,000

Camera Duty Rate 0.00% Inverted Tariff Duty $0

Duty $0.00 Variance ($406,000)

HERO4 BLACK & Retail Components

(32 items excluding water-housing)US HTS

Import

Value

Current

Duty Rate

Inverted

Tariff Rate

Current

Duty

Inverted

Tariff DutyVAR $ VAR %

HERO4 Black Editon Camera 8525804000 $135.00 0.0% 0.0% $0.000 $0.00 $0.00 -

PKG, DISPLAY BOX, BASE, TODOS 3923100000 $0.16 3.0% 0.0% $0.005 $0.00 ($0.00) -100%

Wireless Remote 8517690000 $14.05 0.0% 0.0% $0.000 $0.00 $0.00 -

Battery (Li Ion) 8507600000 $0.01 3.4% 0.0% $0.000 $0.00 ($0.00) -100%

USB Charging Cable 8544429000 $0.42 2.6% 0.0% $0.011 $0.00 ($0.01) -100%

LABEL, KIT, ACCESSORY BOXE 4911998000 $0.01 0.0% 0.0% $0.000 $0.00 $0.00 -

SENSORMATIC, Product Securi ty Sensor 3919905060 $0.05 5.8% 0.0% $0.003 $0.00 ($0.00) -100%

PKG, INSERT CARD, REMOTE PAIRING 4823908600 $0.05 0.0% 0.0% $0.000 $0.00 $0.00 -

PKG, MYLAR DOT, 1" DIA, CLEAR 3919905060 $0.01 5.8% 0.0% $0.001 $0.00 ($0.00) -100%

LABEL, REGULATORY, WI-FI REMOTE 4911998000 $0.05 0.0% 0.0% $0.000 $0.00 $0.00 -

$156.46 - - $0.28 $0.00 ($0.28) -100%

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Annual

Units

Current

Duty/Unit

Inverted Tariff

Duty/Unit

Current

Duty

Inverted

Tariff DutyVAR $ VAR %

HERO4 Silver 950,000 $0.25 $0.00 $237,500 $0 ($237,500) -100%

HERO4 Black 1,450,000 $0.28 $0.00 $406,000 $0 ($406,000) -100%

2,400,000 $0.53 $0.00 $643,500 $0 ($643,500) -100%

Camera Pack-Out Computation – BONUS!

FORMULA: Current pack-out labor rate * # of bulk cameras – Future pack-out labor rate * # of bulk cameras exported

Units Current FTZ VAR $ VAR %

HERO4 Silver 950,000 $389,500 $57,000 ($332,500) -85.37%

HERO4 Black 1,450,000 $594,500 $87,000 ($507,500) -85.37%

2,400,000 $984,000 $144,000 ($840,000) -85.37%

Received unfavorable CBP ruling in May 2013 for housings – 20% (4202)

Modified bulk camera pack-out – insert camera into housing

Imported as “camera” (duty free) essential character

FTZ Activation Pack camera only (no housing)

Labor Pack Out $/Unit

Insert CAM in HOU $0.41

Pack CAM only $0.06

Current

FTZ

0% Duty 20% Duty 0% Duty

0% Duty

Duty Avoidance – Export

Import Duty Free

Bulk Cameras / Components

Finished Goods / Accessories

Export Duty Free

FTZ

Finished Goods / Accessories

Imported Products

Potentially

Dutiable

Exported Products

Duty Free (same

condition for Canada)

Finished Goods Cameras

Export Avoidance - ComputationFORMULA: Duty Paid on Imported Product Subsequently Exported = Export Cost Avoidance Opportunity

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B2B bonded exports of accessories (same condition) to CA

Limited B2B accessory exports to MX and LATAM

B2C inventory is non-bonded

Accessory Quantity Value Total Value US Duty Rate US Duty

RECHARGEABLE BATTERY 12,528 $3.81 $47,732 3.40% $1,622.88

CHEST MOUNT HARNESS 12,258 $6.74 $82,619 7.00% $5,783.32

TRIPOD MOUNT 11,375 $0.64 $7,280 5.30% $385.84

HANDLEBAR SEAT MOUNT 11,240 $1.87 $21,019 5.30% $1,114.00

LCD BP TOUCH 8,090 $30.71 $248,444 0.00% $0.00

BATTERY BACPAC 7,971 $13.80 $110,000 1.50% $1,650.00

HEAD STRAP MOUNT 7,827 $3.11 $24,342 7.00% $1,703.94

124,485 $871,894 - $20,179.92

B2C – Non-bonded

B2B – FTZ bonded

*Computed based on 2014 import data

Duty Deferral – One-Time (Pre-Activation)

Non-cleared

ProductCleared

Product

Fulfillment

LAX

ModusLink LAX DC

Duty paid for product upon

arrival at port of entry

Prior to FTZ Activation

Duty Deferral – One Time (Pre-INVT Turn)

Non-cleared

ProductCleared

Product

Fulfillment

LAX

ModusLink LAX FTZ

Product arrives port of entry and enters FTZ with no duties payable to Customs. Fulfill orders with ‘cleared’ product using FIFO inventory method. No duty paid at time of shipment.

Active FTZ – First Inventory Turn

Pre-FTZ product leaves DC with no duty payable.

Duty Deferral – One Time (Post-INVT Turn)

Non-cleared

ProductCleared

Product

Fulfillment

LAX

ModusLink LAX FTZ

FTZ inventory comprised on non-cleared product

Active FTZ – Post Inventory Turn

Product imported to US commerce and must clear Customs. Duty is now payable.

Duty Deferral – Continual

FTZProducts Import Duty Free

Products enter

US Commerce Duty Paid

Bulk Cameras / Components

Finished Goods / Accessories

Bulk Cameras / Components

Finished Goods / Accessories

Duty Deferral / Capital Cost Computation

FORMULA: (Days of INVT / 365 * COGS) * (Duty Rate) * (Capital Cost Rate) = Capital Cost Opportunity

Capital Cost Rate 12% Total Import Value $75,683,419

AVG INVT Days 20 AVG INVT Value $4,147,037

INVT Turn/year 18.25 AVG Duty Rate 6.26%

AVG Duty Deferral (year) $259,513

Capital Cost Opportunity (year) $30,947

Product US HTS Duty Rate Import Value Duty Cost of Capital

Accessory 1 4202999000 20.0% $9,103,397 $1,820,679 $11,972

Accessory 2 3926909980 5.3% $31,864,906 $1,688,840 $11,105

Accessory 3 6307909889 7.0% $3,898,537 $272,898 $1,794

Accessory 4 8507600000 3.0% $7,382,831 $251,016 $1,456

Accessory 5 8504409580 1.5% $7,297,557 $109,463 $720

Accessory 6 3923100000 3.0% $3,561,271 $106,838 $702

Accessory 7 3926902500 6.5% $1,504,321 $97,781 $643

Accessory 8 3921190000 6.5% $958,098 $62,276 $409

Accessory 9 4016996050 2.5% $2,205,876 $55,148 $363

Accessory 10 8544429000 2.6% $1,823,268 $47,405 $312

$75,683,419 $4,736,108 $30,947

*Computed based on 2014 import data – AVG duty rate for 2015 = 3.5%

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No Opportunity

CAM - Duty Free

Duty Deferral / Capital Cost Computation

FORMULA: (Days of INVT / 365 * COGS) * (Duty Rate) * (Capital Cost Rate) = Capital Cost Opportunity

Capital Cost Rate 12% Total Import Value $75,683,419

AVG INVT Days 20 AVG INVT Value $4,147,037

INVT Turn/year 18.25 AVG Duty Rate 6.26%

AVG Duty Deferral (year) $259,513

Capital Cost Opportunity (year) $30,947

Product US HTS Duty Rate Import Value Duty Cost of Capital

Accessory 1 4202999000 20.0% $9,103,397 $1,820,679 $11,972

Accessory 2 3926909980 5.3% $31,864,906 $1,688,840 $11,105

Accessory 3 6307909889 7.0% $3,898,537 $272,898 $1,794

Accessory 4 8507600000 3.0% $7,382,831 $251,016 $1,456

Accessory 5 8504409580 1.5% $7,297,557 $109,463 $720

Accessory 6 3923100000 3.0% $3,561,271 $106,838 $702

Accessory 7 3926902500 6.5% $1,504,321 $97,781 $643

Accessory 8 3921190000 6.5% $958,098 $62,276 $409

Accessory 9 4016996050 2.5% $2,205,876 $55,148 $363

Accessory 10 8544429000 2.6% $1,823,268 $47,405 $312

$75,683,419 $4,736,108 $30,947

*Computed based on 2014 import data – AVG duty rate for 2015 = 3.5%

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No Opportunity

CAM - Duty Free

Fluff Factor Scale – Duty Deferral

Du

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me

(day

s)

Fluffiness (dimensional)

Fluffy

Extra Fluffy

Impress the CFO!

X

Y

FTZ Savings – Annual (2014 Imports)

• Capital Cost $31K

Cash Flow Improvement• Exports $20KDuty

Avoidance

•Inverted Tariff $643K

•Camera Pack-Out $840K

Customs Duty

Reduction

•MPF Minimization $248K

•CHB Reduction $75K

Customs & Brokerage Fees

Reduction

•$1.85MFTZ Savings

Recommendations

Quantify savings projection prior to sourcing FTZ solution

Build a calculator and keep it simple –Current vs. Future

Leverage Finance and others to sell to senior leadership and fulfillment partners

Persuade fulfillment provider to bear implementation costs

Remember…

Most Important…