Nobody is sure about what will happen on March 29th, but it will definitely affect many businesses in European countries and also influence cross-border e-commerce trade. The exit of the UK is marked by a high degree of uncertainty, which is reflected in the pound sterling exchange rate and in the chaotic political situation.
Even if it is still not clear what will happen in a few weeks, we want to bring some light into the dark and tell you more about the potential consequences and how you should prepare as an online shop to be ready.
How the Brexit might complicate E-Commerce Shipping
There is no doubt that it will make cross-border shipping a lot more difficult. DHL has employed hundreds of employers who will be mainly responsible for taking care of customs clearance. In fact, the company has been employing approximately 50 people per week over several months.
The underlying reason for that is that from March 29th Great Britain could be leaving the EU without an agreement which would cause an increase of custom tariffs and clearance procedure.
In case the parties involved agree on a transition period of two years, the EU-regulations will remain applicable for that time.
More specifically this means for goods that are shipped from the UK to the EU:
- No need for customs formalities
- No proof of origin of goods
- No customs payments to third country-goods
- No customs on British or EU goods
- Goods from Great Britain count as EU goods when traded with third countries
- Duty-free trade under all EU free trade agreements
However, without an agreement this would mean that the United Kingdom will be treated similar to the US or China. As a consequence, goods with a value that exceeds €150 and are shipped from the UK to the EU will be subject to customs tariffs. For textiles customers will have to pay customs at the rate of 12% of the value of the goods. In addition, products with a value of €22 or more will underlie an import sales tax up to 19%, even if customs do not apply.
Introduction of custom tariffs and import sales tax after a No-deal Brexit
As a rule persons or companies who lodge a customs declaration should be established in the European Union.
Companies within the EU should prepare themselves considering following steps:
1. Get an EORI-number in order to export goods
An EORI (Economic Operators Registration and Identification) number is assigned to importers and exporters by the national customs authorities. This identification number is required for customs processing. Keep in mind that the processing time might take up to ten days.
2. Classify Products with Customs Tariff Numbers
The eight-digit customs tariff numbers serve to classify the products and are indicated in the customs declaration. In this way, the customs authorities know which goods are contained in the consignment and which import duties and taxes must be levied on import. A list of the customs tariff numbers for products can be found here: https://www.tariffnumber.com/
3. The EU-customs authorities require following data for exports and imports:
- a. Name and address of sender and recipient
- b. Telephone number and e-mail address of sender and recipient
- c. Description of goods
- d. Value of goods
- e. Customs tariff number
- f. Country of origin (country in which the goods were manufactured)
- g. EORI number
- h. Sales tax identification number (if the recipient is a company and it is a B2B shipment, the recipient’s UID number must also be provided)
- i. Incoterms (to regulate the terms of payment for the recipient)You can find more information about customs clearance here:
4. Required documents that need to be attached the shipments
Each shipment must be accompanied by a commercial or pro forma invoice. The former is used if the goods are of commercial value. Pro forma invoices must be enclosed if the goods have no commercial value.
To summarize, free trade between the EU and the UK will be followed by strict border controls and customs duties on both sides, which will also lead to longer parcel delivery times.
In order to get a better understanding of the consequences you can compare the current delivery times of an insured DHL parcel from Great Britain with those from Norway: From the Scandinavian non-EU country, the average delivery time of 7.5 working days is 250% longer than from Great Britain at the moment. In addition, such a package is almost twice as expensive by default.
Since shipping costs and long delivery times are major factors for shopping cart abandonment, the new regulations will have a negative impact on the conversion rate of online shops that are selling across the canal.
Brexit Preparations for Online Shops
A possible strategy to avoid the problem of customs duties, import sales tax, bureaucracy and longer delivery times is to set up new logistics centres on both sides of the canal. Recently, this has been shown to be relevant for both, British and Continental European companies. The problem, however, is that for most companies, setting up such a logistics network is vey costly.
However, especially British online shops, who also ship internationally already have decided to emigrate partially with their business to the EU – mainly to Germany. E-Commerce businesses expect an easier access to the European market by doing so.
As a result, also German online shops have to be prepared for increasing direct competition.
In order to find the right logistical strategy to deal with this challenge you should ask yourself the following questions:
- On the supply side:
Which raw materials are sourced from which geographical regions?
- How does this affect the cost of export / import?
- How important is the time factor?
- On the demand side:
Has your online shop a large proportions of orders coming from the other side of the canal? Then the establishment of a logistics centre or cooperation with distributors is recommended.
Indirect effects of the Brexit on online shops
Besides the direct impact of the Brexit that has been mentioned above there are also indirect effects that have to be considered
- Currency: The pound has lost value in comparison to the Dollar. This is a problem for webshops from the UK which use e-commerce softwares, hosting providers and other technologies from overseas because it increases their costs.
- GDPR: Great Britain will be classified as insecure third country which will impede the transfer of personal data.
As you can see a Hard Brexit will definitely cause severe complications for online businesses as well as consumers. Online shops will have to adapt their IT-infrastructure, their regulations and shipping strategy in order cope with new, yet unknown, challenges. Many companies have started to employ additional employees and experts that can handle the additional workload and complexity.
Many companies are setting up logistics centers in both regions in order to reduce bureaucracy, shipping costs and duration. However, this is challenging and costly why it is recommendable to join a logistics network instead.
Nonetheless, one key factor to success lies definitely in the development of capabilities to adapt to changing circumstances and be prepared for various scenarios.
If you want to learn more about the consequences of the Brexit you should definitely watch this hilarious video by the way: