Brexit’s Impact On Cross-Border E-commerce

From January 1st 2021 the United Kingdom stopped being part of the European Union by officially starting BREXIT.

The exit of Great Britain from the Union didn’t lead to a total stop of economic exchanges, but had significant consequences on business relations across the English Channel, especially in the cross-border e-commerce sector, which represents one of the most important sectors in international trade. 

In a context of yet to-be-defined commercial relationships, particular attention has been paid to the e-commerce sector, in the light of the fact that the British online market is the third most important in Europe in terms of sales. However, the impact of Brexit on this industry has been felt by EU-based e-tailers and UK consumers mostly in terms of slower delivery times. 

British and EU leaders reached the EU-UK Trade and Cooperation Agreement (TCA) on 24th December 2020. One of the terms of the Brexit deal was to end the free movement of people and trade between the UK and EU. The main consequences of this for e-tailers are stricter customs regulations and border checks for goods, not to mention the cumbersome paperwork required. These additional hurdles have had the overall effect of delaying delivery times on either side of the Channel.

During January 2021, 60% of over 400 companies surveyed said goods from Europe were reaching the UK more slowly than before the TCA was enacted, with 37% reporting delays of several days. At the EU border, 45% complained of delays, with 28% experiencing delays of up to a few days. According to the Financial Times, the time taken for customs officials to review the relevant documents was the most significant contributor to the delays.

No problem if the merchant has a warehouse in the UK, but if he/she sells the goods from an European warehouse, all orders shipped to the United Kingdom may be subject to customs duty. The amount of the tax is quantified by the Customs Authority on the basis of the value of each single product purchased. Customs duties usually have to be paid by the recipient in order for the goods to actually come into his possession. If he refuses to pay the duty, the cost is automatically charged to the sender of the shipment.

In addition to the payment of the duty, which is precisely a tax that is added to the VAT, the cost of customs operations must also be taken into consideration, i.e. a fee requested by the carrier which therefore corresponds to an increase in shipping costs. The duty and the cost for customs operations must be paid both when the product is sent to the buyer and upon return, in the event of a return. This creates many problems for the sale of all those products whose cost is unable to absorb the value of the tax.

Attention must also be paid to the accompanying documentation of the products for orders directed to the UK. Documentation for customs clearance must contain accurate information about the product, including the customs code of the goods, detailed description (brand, composition, countries of origin), number of pieces, net and gross weight, value of each item and total, the value of the shipment, etc.

Despite the TCA stipulating tariff and quota-free trade on all goods, e-tailers must still validate the ‘rules of origin’ status of their goods. These regulations dictate how customs officials classify the ‘economic nationality’ of goods. To access this tariff-free arrangement, e-tailers must prove the goods they are exporting originate from an EU member state, or the UK.

Changing VAT rules poses further challenges for e-tailers. All goods moving between the EU and UK are now considered imports and exports and are therefore subject to import VAT, which is often 20% of the original value of the goods. UK-based e-tailers selling goods to the EU with a consignment value of €150 and under will be exempt from customs duties, as stated in the IOSS (Import One Stop Shop). The corresponding threshold for EU trade to the UK is £135. 

A viable strategy to solve these needs is international warehousing. This means gaining access to local warehouses in both the EU and UK and having your products transported from your manufacturer or central warehouse to these locations. Moreover, to circumvent the capital expenditure (CapEx) implications of this strategy, small and medium-sized e-tailers, in particular, can avoid acquiring and setting up warehouses themselves by simply partnering with a local or international fulfillment provider to leverage their existing networks of regional services including warehouses and carriers.

Either way, regardless of which cross-border warehousing method you chose, compared to international shipping, the strategy will help your ecommerce business to vastly lower shipping costs, speed up delivery times and improve the customer experience, as well as take care of bureaucracy.