Cross-border fulfilment post Brexit: what’s the hold up?
February 26, 2021
We’ve all seen the freight traffic jams at customs, news updates of large carriers suspending their operations from the UK to the EU and even advice to set up shop in the EU. What’s changed? And what’s the hold up?
Be guided by Salesupply’s outline of the three major headaches of Brexit.
Headache 1: Paperwork and customs delays
Since Brexit, both carriers and businesses are required to present certain 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 a correct and corresponding:
- HS code: a classifying system used by customs around the world to identify products;
- Country of Origin;
- GB EORI: Economic Operator Registration and Identification number, required to export commercial goods to the EU. You can request for an EORI number;
- EU VAT number;
- Commercial invoice (digitally, hardcopy is optional).
For each parcel being shipped from the UK to the EU, the commercial invoice must now include:
- Country of Origin
- HS Codes (preferably combined with a product description for the carrier)
- Order value paid by the end-consumer
- Seller details
- Receiver address info
- Reason for shipping (gift/ ecommerce sale etc)
- EU VAT number
- GB EORI number
- Terms of shipping: DDU (Delivery Duty Unpaid) or DDP (Delivery Duty Paid)
If a business and/or carrier doesn’t have this data incorporated into their backend systems (e.g. e-commerce backend) and forgets to include a hardcopy, a parcel will be stopped at customs.
Talk to your carrier about how best to systematize the passing on of this information to ensure smooth cross-border operations.
Headache 2: VAT
Since Brexit, you need to pay the higher EU VAT rate (higher in most EU countries than it is in the UK). You do not pay this to the authorities but to your DDP carrier who charges you the local EU rate plus a handling fee on top of the tax which can be between €2-10.
When orders surpass the amount of £135, it gets tricky. Above this rate, applicable import duties and EU consumer VAT needs to be paid in full before the parcel is delivered.
In this case, you need a carrier that will clear and pre-finance these shipping costs with the DDP Incoterm (instructions to customs about who is responsible for specific elements of the shipment, particularly who is responsible for the import VAT or duties) – but many carriers do not offer DDP at present. This way of working is called DDU.
With Brexit, DDU shipping is far from ideal: working with a DDU carrier means that the end-consumer has to pay the VAT before they physically receive their order.
These are unexpected costs for the EU end-consumer that will definitely cause some dissatisfaction – and in addition they lead to a significant growth in costly (for the seller) return shipments due to payment refusals.
Essentially: for orders over £135 beware DDU. Find and build a relationship with a well-priced DDP carrier.
Headache 3: Extra costs and surcharges
Brexit has made cross-border business unavoidably more expensive. If the administrative and tax rules alone were not difficult enough, carriers have added surcharges to ship to and from the EU. For a UK merchant this means that since Brexit they have to deal with:
- a higher VAT rate;
- additional costs because of DDP;
- higher shipping costs due to carrier surcharges.
This could easily add up to nearly £20 in extra costs to ship a product to your EU clients! Which is why there have been reports that the UK government are now advising businesses to move part of their operations to the EU. Some merchants have been opting for temporary minimum order values to mitigate the increases.
Many 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. For example, if they ship from Asia to their UK warehouse and execute their EU fulfilment from there, they would have to pay import fees twice!
Many UK businesses are changing their strategies:
- JD Sports recently announced plans to build a distribution centre within the European Union, creating 1,000 jobs and avoiding post-Brexit tariffs.
- We spoke to Trevor Gin of hellobaby, a medium-sized reseller of baby products from brands across Europe that is now having to explore creative solutions to this double-up on import fees.
For SMEs, it’s yet to be seen at what scale this sort of independent warehousing setup starts to make sense.
On top of the three headaches outlined above, let’s not forget that Brexit took place during another historic event: the COVID-19 pandemic.
It is important to acknowledge 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 were working at full capacity before the extra operational workload that Brexit added.
While many borders are already shut or partially shut, waiting times at customs are causing increasing frustration for online consumers.
In response, many UK retailers are choosing to communicate these national shipping delays with sitewide banners and pop-ups during checkout so that the expectations of their customers are managed accordingly.
Below is an example of clear ‘delays communication’ from Ooni Pizza:
Fulfilment solutions to avoid Brexit headaches
If you have read all the challenges mentioned above, you’d be forgiven for thinking it looks like the end of cross-border ecommerce, but this isn’t the case. Salesupply has identified two workable solutions:
Set up your cross-border shipping process
If for strategic or operational purposes, you want to keep on sending parcels cross-border, make sure that you:
- have your data, paperwork and your systems up-to-date and compliant
- work with a carrier that has this in order as well
- choose 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.
Delegate! And go local
Consider outsourcing your fulfilment in the EU to a local partner. It might seem like a bigger hassle to extend your business in this way - but nowadays it isn’t because there are many afforadble systems that are are plug and play. Outsourcing your fulfilment locally comes with two big advantages:
- Next day delivery from your local partner - virtually impossible if you ship internationally; a tangible differential against your competion.
- Lower delivery fees because you send locally. For UK companies this would be €4-5 for next day delivery in the largest European ecommerce markets.
In closing, we hope this outline has helped show you the edges of this topic and given you some practical next steps.