The Covid-19 pandemic has shone a light on the importance of cross-border ecommerce as a growth engine for British retailers and brands. Brexit – exacerbated by the pandemic – has presented new challenges for merchants selling online to international markets.
No one can deny the operational and logistical headaches caused by Brexit directly impacting e-commerce retailers of all sizes and across all sectors. Rising shipping costs, delivery delays, new regulations, and increased paperwork are some of the unprecedented challenges online retailers must overcome in the wake of Brexit.
While challenging, it is overly pessimistic to suggest that Brexit is the final nail in the coffin for UK/EU cross-border retail. Brexit, in fact, presents an opportunity for online retailers willing to adapt their operations to meet these new challenges head-on. Here, we take a look at why Brexit isn’t the end of cross-border ecommerce and what online retailers can do to overcome the challenges Brexit presents.
The importance of UK/EU cross-border retail
Brexit is a uniquely disruptive force in global markets, but the impact on intra-European trade is its most significant consequence.
Over the past decade, and especially in the wake of the coronavirus pandemic, it has become clear that e-commerce has become an indispensable part of the European economy. The B2C market in Europe is expected to grow by 14.96% annually to reach US$1,010.0 billion in 2022.
The United Kingdom was Europe’s biggest B2C e-commerce market last year. British consumers spent over €250 billion on online purchases, roughly twice as much as their French counterparts, who came second. Germany was Europe’s third-biggest online market, with revenue of €100 billion. This highlights the importance of cross-border order flow in e-commerce and the interdependence of UK and EU markets in this sector.
Challenges for online retailers brought about by Brexit.
UK/EU trade fell sharply post-Brexit
The impact of Brexit on UK trade is much contested. Despite voting to leave the European Union in June 2016, trade relations with the EU did not change until 1st January 2021, when the Trade and Cooperation Agreement (TCA) came into effect.
Under the agreement, UK-EU trade remains tariff and quota-free, but the UK is no longer a member of the EU’s single market or customs union. As a result, the TCA has increased trade costs between the UK and the EU.
The implementation of the new trade relationship led to a sudden and persistent 25% fall in UK imports from the EU relative to other countries. This suggests that the introduction of the TCA caused many UK firms to stop exporting to EU countries.
Delivery delays of up to several days disrupt e-commerce.
Brexit’s most significant and costly impact on EU-based e-tailers and UK consumers is slower delivery times.
One of the most crucial terms of the Brexit deal was to end the free movement of people and trade between the UK and the EU. The main consequences 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.
In 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. According to a Financial Times report, the time taken for customs officials to review the relevant documents was the most significant contributor to the delays.
‘Rules of origin’ and VAT changes pose red tape challenges.
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.
Strategy & solution for e-commerce retailers: international warehousing
With Brexit significantly disrupting the supply chain, logistics and inventory management for retailers on either side of the Channel, companies engaging in cross-border EU-UK sales must revisit their international fulfilment strategy. Retailers have the dilemma of protecting customers from shipping cost hikes and delays as much as possible to preserve sales whilst ensuring the overall bottom line improves and all regulations are met. One viable strategy is international warehousing.
While there are challenges inherent in managing inventory distribution across multiple global locations, the benefits of international warehousing for your supply chain, shipping, and speed of order fulfilment are crucial to growing your e-commerce businesses.
International warehousing involves gaining access to warehouses in both the EU and UK and having your products transported from your manufacturer or central warehouse to these locations. Small and medium-sized retailers, in particular, can avoid acquiring and establishing warehouses themselves by partnering with a local or international fulfilment provider to leverage their existing networks of regional services, including warehouses and carriers.
International warehousing ensures the timely delivery of goods to far-flung customers at an affordable cost and with minimum shipping challenges.
How to choose the right international warehouse partner
The hard part of setting up international e-commerce operations revolves around choosing the right partner for your business needs.
Location is one of the most crucial factors in deciding the right warehouse partner. Where do you sell most of your products? Do you need regular access to the goods? Do you want the warehouse close to your manufacturer or the main warehouse to avoid high transportation charges? These considerations will ultimately lead to savings on your transportation costs.
Knowing exactly what services you require from a warehouse partner before you begin your search is essential. If you are an e-commerce retailer, you want to find a warehouse with “pick, pack, and ship” fulfilment capabilities. Whereas, if you work exclusively with Amazon, you may want to find a partner with reliable FBA (Fulfillment by Amazon) or FBM (Fulfillment By Merchant) expertise. By addressing your requirements upfront, choosing the proper partner to meet all your needs will be less challenging.
VAT and Taxes
Value Added Tax (VAT) is the sales tax applied to European goods and services. VAT is governed at a national level, and each country in Europe applies its own VAT rate and rules governing the administration of VAT.
The advent of eCommerce and distance selling left VAT rules outdated and overburdensome in Europe. To overcome the excessive burden of VAT management in 27 different countries, foster cross-border trade and competition, and level the playing field for European eCommerce sellers, the European Union recently introduced a new set of regulations and mechanisms.
Whilst these initiatives have gained broad support from eCommerce stakeholders, a level of uncertainty and complexity associated with EU VAT management remains for many cross-border sellers.
A warehouse partner who takes care of all the complexities of distance selling will make it easier for ambitious brands to grow their business.
Expand Your Business to Europe with RedSky Europe Fulfillment & VAT Services
At RedSky Europe, we are an eCommerce 3PL serving UK and global DTC brands looking to seamlessly access and grow throughout Europe. We are located in Ireland and have helped many UK online retailers to fulfil their European orders fast and reduce shipping costs, we also simplify VAT.
We provide accurate, timely order processing with a disciplined team and modern software. We offer a full suite of order fulfilment services to international online retailers, working with various retailers from the UK, North America, Ireland and Europe.
At RedSky, we offer a wide variety of cost-effective storage solutions for your business. When your stock arrives in our warehouse, any products that may be needed in the short term are placed in pick bins or shelves, and backup stock is stored in our inventory storage warehouse. This is a far more cost-effective solution, as for every order, it is not necessary to make trips to the storage unit. We partner with major carriers around the globe and use our shipping volumes to negotiate competitive shipping rates for our business partners.
We provide fully managed VAT services that ensure you meet compliance and avoid overpaying. This means offering an easily accessible managed VAT service that takes care of all the complexities of distance selling in Europe. At RedSky, our mission is clear to make it easy for ambitious brands to grow their business in Europe.