Complexity and cost: The Brexit legacy for EU-UK e-commerce
Although over time processes will improve and become smoother, the immediate legacy of Brexit has been to burden international e-commerce businesses operating between the EU and UK
International e-commerce is a high-stakes game where deliveries need to move quickly across jurisdictions and companies need to try to minimise the possibilities of delays and returns. The costs can quickly mount and the damage to businesses can be high in this highly-competitive environment where consumers will shop around.
Brexit, has then been a shock to that system. The incredibly short period between the agreement of trading conditions and its implementation for the hard date for Brexit left businesses scrambling and the long-term implications are additional administrative burdens that will require new approaches.
To understand we spoke to, Bobbie Ttooulis, Executive Director of Global Freight Solutions (GFS), a global multi-carrier delivery services and fulfilment provider with a dedicated European operation arm, to get a frontline view of what has changed and how businesses are adjusting to the new reality.
Q: How has e-commerce been impacted since 31st January 2021?
Bobbie: The fallout from the implementation of Brexit massively impacted the ecommerce industry in the first week of January. Parcel volumes were down 25% compared to the same period the year before. Compliance rule changes had GFS intercepting 35% of client parcels to help full in gaps in paperwork, and many ecommerce businesses had parcels stuck in lorries on the way to Dover.
Carriers also added surcharges or were forced to stop services in order to protect their networks.
In addition to this, many customers were sending back parcels or refusing deliveries due to unexpected duties being added on delivery.
Q: What changes to rules and regulations are impacting cross-border e-commerce trade?
Bobbie: The ‘Trade Cooperation Agreement’ (TCA) agreement was presented as providing zero tariffs and quotes on all goods traded between the EU and UK. However, the “rules of origin” clause means that it only applies if the majority of its content is derived from UK or EU processing or materials. Businesses who import goods for their products from outside the EU are now facing additional import duties on top of VAT.
Retailers are also overloaded with additional admin in cross border sales. There are security and safety declarations, and import and export declarations., They also need EORI numbers, the Commodity Codes of their products and their customs valuation. All imports and exports are also subject to regulatory checks and controls.
Certain products will also need their own specific documentation, or may be prohibited, for example, baby clothes that contain recycled wool as well as a host of other products that fall under the Phytosanitary / Sanitary prohibitions. All this creates an administrative nightmare that takes more time, resource and, therefore, more cost that the business has to account for.
Q: What additional costs are being incurred and by whom?
Bobbie: The extra administration required for cross border sales means businesses had to divert more resources to making sure the process is smooth and without delay. This means extra cost to the business for these resources, which erodes the potential profit from these sales.
The slowdown in transportation as goods cross the border due to additional checks and customs controls also leaves more cost tied up in the supply chain and lower vehicle productivity.
There are also additional duties and taxes to be paid and businesses have to decide whether to transfer these costs to the customer, allow them to erode their bottom line, or raise prices.
Q: What kind of impact will this have on consumer and business demand?
Bobbie: UK businesses who continue to sell into the EU may have to raise their prices to account for the additional costs, which risks them being less competitive in the EU market. All this additional work could put businesses off selling into the EU altogether which hampers their growth opportunity internationally.
Q: What can be done to ease flows?
Bobbie: Some of the issues we are seeing at the border will naturally get ironed out over time. Businesses will become more experienced with the requirements of their specific products, and the paperwork and information needed to create a smooth flow across the border. However, even as businesses come to terms with the changes, there will be a long-term impact as cross border selling continues to be slowed down due to customs checks, alongside the long-term cost implications.
Q: How well do businesses and consumers understand what is required?
Bobbie: In the first week of January, the last-minute nature of the deal meant that businesses were left playing catch up, trying to get their head around the changes. However, as time has gone on, businesses are starting to understand the requirements and these issues will continue to be smoothed out over time.
Q: Will the situation improve long-term and if so, what kinks do you expect to be worked out and in what timeframe?
Bobbie: Learning the new rules and adapting to a customs border was always going to take some time, but over the next three-to-six months we expect to see these improve. However, issues like costs, certain prohibited items and additional duties and taxes can’t be avoided and will need to be accounted for.
Changes may need to be made to the logistics, pricing and their supply chain. Exporters who are significantly impacted by the TCA and the “rules of origin” clause may find themselves reducing activity or moving parts of their supply chain to the EU.
At GFS we are seeing a trend as more of our customers take up our GFS Europe services, which allows them to reduce the cost and complexity of delivery and returns by operating out of EU locations.