Trade between the UK and the EU hasplummetedsince January 1st 2021. Arguably worse for many retailers, the majority of sales that have been made have been at a loss. The cost of doing business has risen an estimated 30% – and in many cases unexpected VAT, customs and delivery costs have been passed on directly to the end customer. Repeat business has taken a nose-dive and companies have been forced to destroy stock in Europe due to the prohibitive cost of repatriating it into the UK supply chain.
Consequently, many UK businesses have simply pulled out of Europe; but the EU remains a key market and demand remains high. So how can ecommerce businesses rejuvenate trade? How can companies achieve a cost effective business model that supports growth throughout Europe and provides the foundation for further international expansion?
As growing numbers of UK businesses explore the option of setting up EU distribution hubs, James Hyde, Founder of James and James Fulfilment leverages his experience providing outsourced fulfilment to growing ecommerce brands across the UK and Europe, and explains the key factors for successful post-Brexit trade with Europe.
Unexpected Costs
Trade between the UK and the EU fell by almost aquarter in the first three months of the yearas Brexit and the Covid-19 crisis hit businesses hard. One of the biggest issues was the unexpected costs hitting the end customer – costs that have had a dramatic impact on repeat sales.
No business wants to slap the customer with an unexpected fee right at the last minute; but from duty to customs clearance fees and VAT, as well as the carrier’s €10 admin costs, it all adds up. For small value goods, the additional cost to the end customer is unfeasible. While customers have generally been paying the extra cost, rather than refusing to accept items they have ordered, they have not come back. Given the level of investment required to acquire new customers, one-off sales are rarely profitable. The consequence of these ‘hidden’ costs is therefore twofold: not only have sales to the EU declined but very few have delivered any bottom line benefit. Add in the cost of returning unsold goods into the UK supply chain – or opting to destroy them if the cost is untenable – and it is understandable that many UK businesses have simply pulled out of Europe.
Yet EU demand for UK goods has not vanished overnight; and the Brexit deal promised zero tariff. So what needs to change in order for ecommerce retailers to successfully tap into this market?
Transparency and Clarity
Companies’ inability to present customers with an accurate price up front is a significant issue – and that is due to both VAT and harmonised code confusion. Managing EU VAT de minimis has been a challenge – with companies requiring a dedicated VAT number in each EU trading country, as well as the ability to account for different VAT rates and thresholds. While this problem should now be reduced with the introduction of the Import One Stop Shop (IOSS), the thresholds are being removed, which will mean more goods are subject to VAT.
Lack of clarity surrounding harmonised commodity codes also continues – and if a product’s paperwork does not include the correct description and/or commodity code, customs fees will be imposed, creating an unexpected and unwelcome bill for the end consumer.
The good news is that once a company has ensured it has the correct Harmonised Codes, registered for its IOSS VAT number and worked closely with carriers to understand the additional costs (!), an accurate price can be presented to the customer at the point of sale.
The bad news is that while this will overcome the negative customer experience associated with additional fees, the total cost of sale is still higher than before Brexit, leaving UK businesses with a competitive disadvantage compared to their EU counterparts.
Establishing a European Footprint
If UK companies are to meet the sustained demand from EU customers at a price point that remains both competitive and profitable, the best option is to establish a physical presence in Europe. By shipping products either direct from source – typically the Far East – into a European distribution centre or exporting in bulk from the UK, ecommerce businesses can overcome many of the barriers and costs that have resulted from Brexit.
In fact, there are a number of significant advantages. Goods can be shipped around Europe without the delays or costs associated with cross-border trade; meaning no customs forms or added costs and, critically, no nasty last minute shocks for the customer. Businesses also gain the added benefit of faster delivery: goods can be delivered up to three days sooner if shipped from a EU base than the UK. And it costs less: some companies expect to cut costs by £100,000 a year on shipping alone.
Increasingly, we’re therefore seeing retailers looking to maximise the market by establishing a presence in the key markets of France, Germany and the Netherlands. However, competition for warehouse space is fierce as companies internationally realise this is a highly viable route to access ecommerce opportunities across Europe. If a UK business does not present a big enough opportunity to capture attention, it is likely to be left by the wayside – along with its EU expansion plans.
Ecommerce Success through Flexible Fulfilment
Outsourced fulfilment is an alternative solution. It not only provides a foothold within the EU but also offers a number of commercial advantages. Working with a provider that has the weight to secure distribution centre space, negotiate discounts with the carriers and create relationships with local tax and legal advisers, gives companies immediate access to the EU market.
In addition, ecommerce businesses gain access to expertise that can support them with questions surrounding harmonised codes as well as fast track compliance with the new IOSS. And, with real-time access to the fulfilment process through cloud based software, they can make changes on-the-fly to enhance the customer experience – from reprioritising picking activity to changing the shipping plans.
There are many advantages of fulfilling EU ecommerce business from a European location, so it begs the question why so few UK businesses have adopted this model earlier. Stock management has understandably been the biggest concern, with companies worried about how to ensure effective utilisation with goods split across two different distribution centres.
However, good fulfilment business intelligence can give companies the information needed to better manage this complexity. From rate of sales by SKU, to margin erosion and returns data – including reasons for return, vital for ecommerce success – companies can use rapid insight into the entire fulfilment process to intelligently manage inventory throughout the supply chain and maximise sales opportunities in both the UK and Europe.
Conclusion
Post-Brexit trade with the EU will never be as simple as it was before; but by relocating to a European Distribution Centre with an outsourced fulfilment partner, UK ecommerce businesses can gain low cost access to this key market and a business model to support profitable growth. Companies have mothballed EU business for long enough. It’s time to get back into Europe.
Author:
James Hyde, CEO, James and James Fulfilment
You are in: Home » Guest Comment » GUEST COMMENT Post Brexit: How to trade competitively and profitably in Europe
GUEST COMMENT Post Brexit: How to trade competitively and profitably in Europe
by James Hyde
Trade between the UK and the EU hasplummetedsince January 1st 2021. Arguably worse for many retailers, the majority of sales that have been made have been at a loss. The cost of doing business has risen an estimated 30% – and in many cases unexpected VAT, customs and delivery costs have been passed on directly to the end customer. Repeat business has taken a nose-dive and companies have been forced to destroy stock in Europe due to the prohibitive cost of repatriating it into the UK supply chain.
Consequently, many UK businesses have simply pulled out of Europe; but the EU remains a key market and demand remains high. So how can ecommerce businesses rejuvenate trade? How can companies achieve a cost effective business model that supports growth throughout Europe and provides the foundation for further international expansion?
As growing numbers of UK businesses explore the option of setting up EU distribution hubs, James Hyde, Founder of James and James Fulfilment leverages his experience providing outsourced fulfilment to growing ecommerce brands across the UK and Europe, and explains the key factors for successful post-Brexit trade with Europe.
Unexpected Costs
Trade between the UK and the EU fell by almost aquarter in the first three months of the yearas Brexit and the Covid-19 crisis hit businesses hard. One of the biggest issues was the unexpected costs hitting the end customer – costs that have had a dramatic impact on repeat sales.
No business wants to slap the customer with an unexpected fee right at the last minute; but from duty to customs clearance fees and VAT, as well as the carrier’s €10 admin costs, it all adds up. For small value goods, the additional cost to the end customer is unfeasible. While customers have generally been paying the extra cost, rather than refusing to accept items they have ordered, they have not come back. Given the level of investment required to acquire new customers, one-off sales are rarely profitable. The consequence of these ‘hidden’ costs is therefore twofold: not only have sales to the EU declined but very few have delivered any bottom line benefit. Add in the cost of returning unsold goods into the UK supply chain – or opting to destroy them if the cost is untenable – and it is understandable that many UK businesses have simply pulled out of Europe.
Yet EU demand for UK goods has not vanished overnight; and the Brexit deal promised zero tariff. So what needs to change in order for ecommerce retailers to successfully tap into this market?
Transparency and Clarity
Companies’ inability to present customers with an accurate price up front is a significant issue – and that is due to both VAT and harmonised code confusion. Managing EU VAT de minimis has been a challenge – with companies requiring a dedicated VAT number in each EU trading country, as well as the ability to account for different VAT rates and thresholds. While this problem should now be reduced with the introduction of the Import One Stop Shop (IOSS), the thresholds are being removed, which will mean more goods are subject to VAT.
Lack of clarity surrounding harmonised commodity codes also continues – and if a product’s paperwork does not include the correct description and/or commodity code, customs fees will be imposed, creating an unexpected and unwelcome bill for the end consumer.
The good news is that once a company has ensured it has the correct Harmonised Codes, registered for its IOSS VAT number and worked closely with carriers to understand the additional costs (!), an accurate price can be presented to the customer at the point of sale.
The bad news is that while this will overcome the negative customer experience associated with additional fees, the total cost of sale is still higher than before Brexit, leaving UK businesses with a competitive disadvantage compared to their EU counterparts.
Establishing a European Footprint
If UK companies are to meet the sustained demand from EU customers at a price point that remains both competitive and profitable, the best option is to establish a physical presence in Europe. By shipping products either direct from source – typically the Far East – into a European distribution centre or exporting in bulk from the UK, ecommerce businesses can overcome many of the barriers and costs that have resulted from Brexit.
In fact, there are a number of significant advantages. Goods can be shipped around Europe without the delays or costs associated with cross-border trade; meaning no customs forms or added costs and, critically, no nasty last minute shocks for the customer. Businesses also gain the added benefit of faster delivery: goods can be delivered up to three days sooner if shipped from a EU base than the UK. And it costs less: some companies expect to cut costs by £100,000 a year on shipping alone.
Increasingly, we’re therefore seeing retailers looking to maximise the market by establishing a presence in the key markets of France, Germany and the Netherlands. However, competition for warehouse space is fierce as companies internationally realise this is a highly viable route to access ecommerce opportunities across Europe. If a UK business does not present a big enough opportunity to capture attention, it is likely to be left by the wayside – along with its EU expansion plans.
Ecommerce Success through Flexible Fulfilment
Outsourced fulfilment is an alternative solution. It not only provides a foothold within the EU but also offers a number of commercial advantages. Working with a provider that has the weight to secure distribution centre space, negotiate discounts with the carriers and create relationships with local tax and legal advisers, gives companies immediate access to the EU market.
In addition, ecommerce businesses gain access to expertise that can support them with questions surrounding harmonised codes as well as fast track compliance with the new IOSS. And, with real-time access to the fulfilment process through cloud based software, they can make changes on-the-fly to enhance the customer experience – from reprioritising picking activity to changing the shipping plans.
There are many advantages of fulfilling EU ecommerce business from a European location, so it begs the question why so few UK businesses have adopted this model earlier. Stock management has understandably been the biggest concern, with companies worried about how to ensure effective utilisation with goods split across two different distribution centres.
However, good fulfilment business intelligence can give companies the information needed to better manage this complexity. From rate of sales by SKU, to margin erosion and returns data – including reasons for return, vital for ecommerce success – companies can use rapid insight into the entire fulfilment process to intelligently manage inventory throughout the supply chain and maximise sales opportunities in both the UK and Europe.
Conclusion
Post-Brexit trade with the EU will never be as simple as it was before; but by relocating to a European Distribution Centre with an outsourced fulfilment partner, UK ecommerce businesses can gain low cost access to this key market and a business model to support profitable growth. Companies have mothballed EU business for long enough. It’s time to get back into Europe.
Author:
James Hyde, CEO, James and James Fulfilment
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