“For e-commerce sellers, Brexit basically means more bureaucracy and tax.”
- Richard Asquith, Global Vice-President of Indirect Tax (Avalara)
You would be forgiven for taking this quote from Asquith as evidence of the disastrous implications of Brexit for your e-commerce business. In a sense, he is unfortunately right. No one can deny the operational and logistical headaches Brexit is causing for e-commerce retailers of all sizes, and across all sectors. Rising shipping costs, delivery delays, new regulations, and increased paperwork are posing unprecedented challenges for EU e-tailers selling to UK customers and vice versa.
However, to suggest that Brexit is the nail in the coffin for European e-commerce is overly pessimistic. This article will review the true impact as well as explain how you can adapt to the strategic challenges it poses, and innovate your e-commerce business during this sea change.
Brexit is a uniquely disruptive force in global markets, but the impact on intra-European trade is its most significant consequence.
European e-commerce is mature and growing rapidly. Estimates suggest that the total number of e-commerce consumers will surpass 500 million by the end of 2021 with a penetration rate of 60% of the population. Moreover, it is predicted that e-commerce volumes will surge by 22% this year, reaching a total transactional value of €706B.
The UK, along with France and Germany, are Europe’s largest e-commerce markets. In 2019, UK e-tailers generated revenues of £2.8B from EU-based orders. Similarly, 25% of UK consumers made purchases from EU sellers in the Q4 of 2020. This highlights the importance of cross-border order flow in e-commerce and the interdependence of UK and EU markets in this sector.
The pandemic has driven an uptick in e-commerce reliance for the average consumer. Worldwide e-commerce sales reached $26.7T in 2020, making 19% of total global retail sales. The UK and Europe are critical markets in this global growth story, mainly buoyed by historically high levels of cross-border activity. However, new Brexit-related regulations and higher costs are disrupting this previously idyllic transactional relationship. Comparing data from January 2021, the first month post-Brexit, with December 2020, the UK’s total exports to the EU fell by 40.7% (£5.6B) while imports from the EU declined by 28.8% (£6.6B).
The most significant impact of Brexit for EU-based e-tailers and UK consumers is slower delivery times.
British and EU leaders finally 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.
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. At the EU border, 45% complained of delays, with 28% experiencing delays of up to a few 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.
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. The corresponding threshold for EU trade to the UK is £135.
With Brexit having significantly disrupted supply chain, logistics and inventory management for e-tailers on either side of the Channel, companies engaging in cross-border EU-UK sales are forced to revisit their international fulfilment strategy. Decisions must be made to shed customers from any shipping cost hikes and delays as much as possible to protect sales, all whilst ensuring the overall bottom line improves and all regulations are met.
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 fulfilment 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 e-commerce business to vastly lower shipping costs, speed up delivery times and improve the customer experience, as well as take care of bureaucracy.
One in four online shoppers is deterred from buying internationally due to high shipping costs. In addition, 55% of online shoppers abandon their orders due to unexpected charges, namely shipping costs. These effects are only worsened now with Brexit having invariably made EU-UK cross-border shipping more complicated and costly for e-tailers and customers. International warehousing alleviates this issue since holding goods in the export market lowers shipping costs, thereby eliminating an additional pricing burden for the end consumer.
Given the importance of rapid delivery to the end consumer, keeping delivery times down has already been an urgent priority. Now, with Brexit slowing down international shipments, e-tailers face even more pressure to tackle it. With cross-border warehousing, your goods are already stored in your customer’s region, which significantly speeds up last-mile deliveries.
E-tailers on either side of the Channel need to be creative and flexible in order to tackle the strategic challenges posed by Brexit, namely from a CX perspective. In that sense, naturally, low shipping costs and fast deliveries go a long way, but they are by no means enough. Brexit adds uncertainty to delivery as a whole which you as an e-tailer need to resolve. Using cross-border warehousing to increase inventory supplies locally, helps in overcoming this issue as it smoothens the process of order fulfilment and last-mile delivery for the end consumer. You also gain more control over deliveries and increased trackability of inventories in target markets, allowing you to optimize CX even further.
Being able to store and distribute goods in the export market via an international fulfillment partner limits the additional bureaucracy on your end. Since your partner will take care of clearing goods at ports of entry, you don’t need to worry about ‘rules of origin’ regulation and VAT changes and can focus on sales instead.
Having a cross-border warehousing strategy offers easier access to international sales markets, especially at times of uncertainty as experienced now post-Brexit. However, it is not a one size fits all solution. For example, acquiring or leasing warehousing and fulfilment facilities requires significant CapEx, which might not be available to small and medium-sized e-tailers. In this case, executing this strategy by partnering with a warehousing provider is a better and more CapEx-efficient option.
Additionally, for e-tailers with low liquidity and a high amount of stock-keeping units, mirroring the entire inventory might also not be feasible. A solution to this is to gather market intelligence into what the best selling products in the target market would be and stock only these items via international warehousing, thereby reducing initial storage fees. From there, e-tailers might choose to expand the product range incrementally over time.
In any case, depending on the size and nature of your e-commerce business, access to warehousing in the export market is a major advantage when it comes to capturing additional market share in the post-Brexit setting. Moreover, while it’s true that the initial costs can be higher, this is far outweighed by the long-term benefits in shipping costs, delivery times and overall customer experience, especially when working with trusted local fulfilment providers.
The benefits of international warehousing for e-tailers looking to solve the challenges posed by Brexit are undeniable. Yet, it doesn’t come without its challenges. It’s difficult and time-intensive to find and negotiate suitable warehousing partners. Additionally, integrating IT networks from different warehousing and fulfilment providers adds further complexity and costs.
Codept’s SaaS solution solves all these issues. Our market-leading API serves as a platform for connecting the IT systems of retail and logistics, enabling you to not only find, select and integrate the optimal warehousing, last mile and logistics partners for your e-commerce business, but also manage your network with ease. This makes us particularly well-positioned to help you grow your business in an international context, especially in the face of Brexit.
Depending on the needs and size of your business we can help you:
At Codept, we offer a unified integration platform for logistics. This enables e-tailers of all shapes and sizes to gain access to the vast and complex web of European logistics. Our one-stop-shop API helps us solve your warehousing, distribution and last-mile delivery issues. Using the Codept platform will give your brand additional visibility, optimize your delivery times, and enable you to save money.
A combination of COVID-19 and Brexit has created seemingly insurmountable difficulties for European e-commerce businesses recently. Here at Codept, we are committed to helping your business survive, recover and thrive, as we guide you through a highly fragmented market.