Britain is all set to exit from the EU on October 31st, 2019. Although most businesses will be impacted by this move, in particular, SMEs will be hit hard.
At a time when the order delivery period is shrinking and customers are setting unbelievably high delivery standards, it is feared Brexit may slacken the order transit times.
Ecommerce and retail businesses that export or import products outside of the UK are already fearing undue delays and a steep increase in shipping costs. Their fear is not completely unfounded. There is very little clarity surrounding the trade commerce once the referendum is finalized. Will it deliver a blow to trade exchanges with the countries outside of the UK? It remains to be seen.
When it comes to small parcel shipping, eCommerce in the UK has been booming. According to the UK industry association for online retail, and Capgemini, the e-commerce market is estimated at £10bn. Out of that, at least 54% of UK residents have been shopping outside of the UK. The free trade exchange between EU countries has only accelerated the growth of the UK’s eCommerce industry. But all that is going to change on the OCT 31st.
It is vital for businesses within the UK to be prepared in advance for the operational uncertainties that are to ensue post-Brexit.
Let’s break down the challenges posed by Brexit for e-commerce businesses
A snag in the last-mile logistics is almost a given Post-Brexit. In place of free moving carriages and goods, there will be additional security checks, document verification, and shipment validation. Retailers have to reset their delivery commitments based on the new timelines. Taking an optimistic standpoint, even if parcel delivery does not come to a complete standstill retailers must be prepared to face unusually high delivery delays in the initial days.
Pre-Brexit – Retailer hand their orders to shipping carriers. Carriers ship them to buyers.
Post Brexit: In conjunction with the above steps carriers have to get them cleared by customs and security before moving forward with delivery.
This poses an additional burden for shipping carriers in getting the orders to the consignee on time. More importantly, the prolonged delay will result in diminishing the allure for the order. An increase in border checkpoints means more delays which result in devaluing the product.
Inflated shipping costs
As predicted by ParcelHero, the purchase of goods from outside of the EU will cost 30% more post Brexit. Here’s a teardown on the increased order cost
VAT – 20%
Transportation Costs – 5%-6%
Custom Clearance Charges – 2% – 3%
The cost of import/export items is likely to be dearer from Oct 31st. Along with the VAT rates, a raft of custom duties, taxes, and excise duties are expected to be imposed on the import/export of goods. Retailers could pass on the shipping costs incurred to their end buyers. However, it will be detrimental to their brand. In order to remain competitive if not relevant, small businesses will be forced to absorb the extra costs.
Documentation and Customs Process
Post-Brexit orders traded between the UK and EU will be subjected to custom clearance. This necessitates a commercial invoice associated with every import/export in order to determine the duties and taxes levied. A commercial invoice must contain information such as company details and details about the receiver. It is also good practice to mention Incoterms, HS code and declared value of goods on your document. The additional paperwork is likely to pose a red tape challenge for the movement of goods between the EU and the UK.
In conclusion, the following steps must be taken by retailers while preparing for the Brexit:
- Take stock of your inventory. Revisit your inventory sourcing strategy. Assess what percentage of goods are being outsourced from EU countries. Find alternate domestic options for the outsourced material.
- Understand your target market. Is your customer base predominantly within the UK or in the EU? Reach out to your customers if they happen to reside outside of the UK. Offer them a revised shipping strategy that includes cost-effective delivery options.
- Research about the documentation requirements for customs clearance. Acquire all the necessary authorization to export goods to customers in the EU.
- Most of all Post-Brexit shipping costs are going to peel away your revenue. Consider a rejig of your order pricing strategy. Introducing incremental pricing changes will help customers seamlessly transition to paying higher.
- Never undermine the savings that you will receive from auditing your shipping invoice. Enlist the services of an automated audit service like AuditShipment that will do the heavy lifting of shipping spend management on your behalf.