Brexit disrupts cross-border e-commerce
Originally published at ti-insight.com
After a quiet initial start to the UK’s post-Brexit trading relationship with the EU, a number of problems have begun to emerge across UK-EU supply chains. Cross-border e-commerce has been one of the areas (although certainly not the only one) to see these challenges crop up. A number of retailers were not ready for the plethora of changes coming their way, leading many to temporarily suspend cross-border sales.
Among UK retailers, Asos, John Lewis, Debenhams and Fortnum and Mason are among those to have halted some part of cross-border operations. EU retailers such as Scandinavian Outdoor, Bike Bits and Best Secret are some of those to have stopped selling the other way.
Rules of Origin has been one of the areas causing most confusion. Whilst the Trade and Cooperation Agreement (TCA) allows for most goods to move across borders tariff-free, this is only the case where goods are deemed to qualify sufficiently as a UK or EU product, i.e. a certain percentage of the components of a good need to have been made in the UK or EU to be exported tariff-free into the other area. Rules of Origin stipulations are a standard part of most free trade agreements, typically associated with manufacturing areas such as the automotive sector. However, this also very much applies to retail. According to the British Retail Consortium, at least 50 of its members have been impacted by the new rules. River Island and H&M have both confirmed they expect to pay penalty tariffs on some clothing sent between their UK and EU businesses.
New VAT requirements, including those which mean cross-border e-commerce sales must include VAT paid at the point of sale, rather than the point of import, have also been a source of pain, with retailers not always aware of how to incorporate these changes. Many retailers also appear to be unaware of the VAT requirements from different countries. Furthermore, the UK has removed a previous Low Value Consignment Relief, which relieved import VAT on consignments of goods valued at £15 or less.
Keeping up with the paperwork burden also appears to be an issue. DPD was forced to pause its road freight service into Europe last week. The company issued a statement, saying “We are seeing up to 20% of parcels having incorrect or incomplete data attached, these will have to be returned to you so that the required data can be provided.” The issue for parcel deliveries is particularly severe. All deliveries in a vehicle must adhere to new rules otherwise the cross-border transport cannot be made. In this instance, couriers must return parcels initially to their depots, which are designed for rapid sortation and outbound delivery and not for returns of this kind.
Unless greater leniency is granted, delivery companies can expect disruption for as long as retailers are unable to grasp the difficulties of the new trading relationship. Its clear that some companies, particularly SMEs, are beginning to question whether it is worth the effort to comply with the additional red tape imposed.
In Ireland, 84% of consumers shop cross-border, well above the European average of 56%, attributable to its proximity to the UK market. However, the difficulties of the new trading relationship are putting a strain on these imports. Asos for instance will now fulfil Irish orders from its EU-based warehouse to avoid the regulations, whilst Debenhams has said it’s no longer trading online in Ireland “due to uncertainty around post-Brexit trade rules”. The Irish post office, An Post, will charge a fee of €3.50 for all items to deal with additional administrative costs. It has so far said that “it is trading fully and smoothly with almost all of the UK online retailers for whom it delivers across Ireland” but that “some delays should be expected due to UK retailers bedding in their new data requirements prior to shipping.”
These issues come at a time of high growth for online retailers, as further European lockdowns force consumers to shop online. However, these logistical issues will reign in expectations for quick, easy and profitable growth.