E-fulfilment after Brexit

We have all seen the terrifying images of freight traffic jams at the UK borders, CHIEF (Customs Handling of Import and Export Freight) systems, and the news updates of several large carriers announcing the suspension of their operations from mainland Europe to the UK or from the UK to mainland Europe. It's time for an expert opinion on the topic. With us is Ludo Verlinden, Global Business Development Manager Fulfilment at Salesupply.

Text: Ruud den Rooijen // Photos: Salesupply

Ludo, what is going on with Brexit? How bad is it?

"There is indeed a lot of worrisome news regarding cross-border logistics and Brexit.

That Brexit was coming was clear, but how and what remained vague for a long time. Too long, so much we can say now. In December, we got the first signs of how bad it would get, and since January when Brexit became official, it has become even worse."   

"It has become so bad that officials from the British Department for International Trade have advised British companies that export products to the EU to actually create EU companies to circumvent cross-border issues…"

What is the problem exactly?

"For the merchant, the problems are delays, extra cost and different procedures. We have identified 4 key themes causing the most Brexit headaches: 

1 Paperwork and customs delays

"Since Brexit, both carriers and businesses are required to present specific information to customs. The problem is that their IT systems aren't always designed to include this information. For each parcel, carriers need to provide correct and corresponding HS codes, Country of Origin, GB EORI and GB VAT numbers and a commercial invoice - both hardcopy and digitally."

What data needs to be included in a commercial invoice?

"In the case of a parcel being shipped from Europe to the UK, the commercial invoice needs to include: Country of Origin, HS Codes, sales value paid by the end-consumer, seller details, receiver NAW info, GB VAT and GB Eori number shipping DDP.

This data is not impossible to obtain; the issue lies with the systems of either the carrier, the seller or both. If you don't have this data incorporated into your systems (WMS, TMS or e-commerce back-end), your parcel will be stopped at customs, causing delays and unhappy UK customers." 

2 VAT

"Since Brexit, businesses need to collect 20% UK consumer VAT (in the case of an EU-UK delivery) and need to register for UK VAT to obtain a local VAT number used in the quarterly UK VAT administration and filing at HMRC in the UK. 

When orders surpass the amount of £135, it gets tricky. Below this amount, you pay VAT periodically, but above, applicable import duties and 20% UK consumer VAT needs to be paid in full before the parcel is delivered.

To do so, you need a carrier that will clear and pre-finance these shipping costs with the DDP (Delivered Duty Paid) Incoterm. Many carriers do not offer this service due to the required customs deposits at HMRC."

What about carriers that do not provide this service? Can they still operate?

"They can, this way of working is called DAP (formerly known as DDU), but it is far from ideal. Working with a DAP carrier means that the end-consumer has to pay the VAT before they physically receive their order. These are unexpected costs for the end-consumer that will definitely cause some dissatisfaction.

For businesses, DAP shipments mean that they should expand their customer service teams, as demanding customers will not appreciate this unpleasant financial surprise.

I know of an online fashion brand that literally dedicated an FTE to go through their placed orders to manually delete all UK orders with a value above £135."

3 Extra costs and surcharges

"Brexit has surely made cross-border business more expensive. If the administrative and tax rules alone were not difficult enough, carriers have added surcharges to ship to and from the UK. From the EU to the UK, surcharges of €20 are normal, and from the UK to the EU, the extra costs are even higher. That's why the export officials from the UK government are now advising businesses to move part of their operations to the EU.

Most products sold in cross-border e-commerce are produced outside of the EU, causing an absolute export nightmare for UK businesses doing business with the EU. If they ship from Asia to their UK warehouse and execute their EU fulfilment from there, they will have to pay import fees twice! That's why many UK businesses are changing their strategies. Many ship part of their product supply directly from Asia to an EU warehouse and the other part to the UK."

4 COVID-19

"Let's not forget that this historic event took place during another historic event, the COVID-19 pandemic. This is important to acknowledge because carriers are currently executing at a volume they were expecting to handle in 2025 - without being able to expand their workforce to cope with these volumes. They are working at full capacity as it is without the extra operational workload that Brexit brings.

While many borders are already shut or partially shut, waiting times at customs keep increasing, causing frustrations among demanding online consumers." 

With all the challenges you just mentioned, what can cross-border businesses do to stay in business and to remain attractive to their clients?

"If you have read all the challenges mentioned above, it does indeed look like the end of cross-border e-commerce, but it doesn't have to be that bad. We have identified two workable solutions:"

1- Cross-border delivery

"If, for strategic or operational purposes, you want to keep on sending parcels cross-border, make sure that you:

• have your data, paperwork and systems up-to-date and compliant
• work with a carrier that has this in order as well - a carrier with a good customs infrastructure
• make sure that your carrier can send DDP, especially for orders above £135
• partner with a carrier that doesn't charge unreasonable fees and surcharges

Otherwise, my strong advice would be:"

2 - Go local

"Outsource your fulfilment in the UK or (for UK businesses) in the EU. It might seem like a bigger hassle, but nowadays, it isn't since most systems are plug and play.

Outsourcing your fulfilment locally comes with two big advantages: 

• Next-day delivery, virtually impossible if you ship internationally, and so important to compete in e-commerce 
• Lower delivery fees because you send locally
  For EU companies, this would be from £4-5 for next-day delivery in mainland UK
  For UK companies, this would be €4-5 for next-day delivery in the largest European e-commerce markets."   

This article was previously published in Cross-Border Magazine 17.