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Brexit’s Effect on Global Logistics

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Brexit Effect on Global Logistics

It’s official, Harry and Megan have left– what? Oh, the other Brexit? Okay, take 2.

It’s official, as of January 1, 2021, e-commerce businesses that ship products to and from the United Kingdom must comply with a slew of new regulations, customs requirements and duties. 

Failure to comply could land you with royal consequences like products blocked at customs, surprise fees and fines, and frustrated customers that never got their product or paid unexpected customs fees.

If you can wait until July 1, 2021, they’re changing the trade rules to make it easier for e-commerce businesses to comply with the customs rules.

In this article, we’ll dive into Brexit’s overall effect on your business operations, and the 4 things you need to know when shipping to and from the UK. Also, be sure to check out the Brexit Checker for a personalized checklist.

The Brexit Effect on eCommerce

Want the good news or the bad news? Let’s start with the good news:

Increase in UK Exports

Experts predict that, like Boris Johnson on a diet, the British £ will drop, causing products from the UK to become more affordable for international consumers, and thereby increase exports of British goods. Okay, to the bad news…

Slower Delivery Times

Supply chains are expected to struggle during the transition period, as all relevant parties adjust to new protocols and custom clearances. This is expected to cause significantly slower delivery times and increased product loss/damage in transit, because the more hands involved, the more likelihood for human error. And finally, le pièce de résistance…

Increased Shipping Costs

When shipping into or out of the UK, additional tariffs on goods will either eat into your margins, cost your customers, or a bit of both. Not to mention, because the customs landscape is complex and varies by state, giving your customers clear custom fees is hardly possible, until July 1, 2021. As a silver lining, customs duties could encourage more local consumerism in the UK.

Complying with Post-Brexit Trade Rules

Here are the four logistics-related tasks to consider on your journey towards compliance with UK’s new trade rules:

  1. Register VAT / manage inventory
  2. Prepare for customs
  3. Handle shipping costs
  4. Update policies

Register VAT / Manage Inventory

A VAT number is a value-added tax identification number, and you need one to conduct business in the EU and the UK. The only way to get a VAT number is to register with a country’s tax authority.

UK sellers need to register with each country in which they sell. On July 1, 2021, this requirement goes away with the one-stop-shop rules. Due to the added complexity and increased tariffs, some UK sellers are finding it financially beneficial to move a portion of their inventory to EU warehouses.

EU, US and other country sellers that ship orders to the UK below £135 need to register their business for a VAT with HM Revenue and Customs. Similarly to UK sellers storing inventory abroad, international sellers that conduct a large portion of business in the UK should consider moving inventory to UK warehouses to avoid tariffs and fees.w

Be sure to contact your country’s tax authority or a local tax professional to understand how VAT rules impact your business. 

Prepare for Customs

Regardless of where your company is based, clearing customs in the EU requires an Economic Operator Registration and Identification (EORI) number, which uniquely identifies an exporter for customs. 

Now, you need an additional UK EORI — register for your UK EORI with HM Revenue and Customs. Customs declarations could include the following information:

  • EORI number.
  • VAT amount
  • VAT registration ID
  • Harmonized code, country of origin, description of contents, and total value of products/parcel

Handle Shipping Costs

Additional tariffs will be implemented between the UK and EU, and there are two choices when deciding who pays the bill.

Delivered at Place (DAP): The customer pays any import costs, the seller is only responsible for shipping the product. 

Delivered Duty Paid (DDP): The seller pays any and all import costs.

When making this decision, consider your margins and what your competition offers. You can consider building it into the product price, or even discounting the import cost on orders above a certain threshold (e.g., free shipping/import fees on orders over $50!)

In the case of product returns, customs and taxes can be refunded but asking for a refund from custom agencies is complex, so consider that when moving to the final step below.

Update Policies

When you have made your shipping decisions, be sure to update your shipping policy and your returns policy to set customer expectations.

Shipping Policy

Make it very transparent whether your business or the customer is responsible for paying applicable customs fees and import taxes. If you pay (DDP), you can advertise the coverage as a competitive advantage; conversely if the customer pays (DAP), the customer will not be upset when unexpected fees are assessed after checkout.

Return Policy

If your customer pays the cost of any duties and taxes, clarify whether the collected import taxes and duties can be refunded in the case of a product return. While it is possible to get a refund, you’ll have to go through shipping carriers who paid the custom agencies directly. Headaches ensue.

Wrap It Up

Navigating global e-commerce is tough, and Brexit has thrown yet another wrench into the machine. But as an entrepreneur, you’re used to solving problems by now, either on your own or leveraging your network. That’s where a trusted partner in global logistics and order fulfillment should come into play. Find someone with experience in navigating the increasingly complex global logistics landscape to get set up for success.

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