Brexit Clinic: A 360° conversation with experts and consumers
Yesterday Diego and Vernon, the co-founders of Bezos.ai, took part in a 'Brexit Clinic' on Clubhouse. Hosted by Martin Mignot from Index Ventures, the event had a panel of 10 experts that drew an audience of over 100 people.
For those who have not heard of Clubhouse, it is a new audio-only social media app where rooms dedicated to certain topics have speakers up on stage, and an audience that can also be invited to participate in the conversation.
The following is a summary of what was discussed.
- What caused the Brexit problem
- The effect on sellers and customers
Organised by Martin Mignot (Index Ventures). The speakers were: Vojtech Horna (Index Ventures), Glen Walker (Trouva), Leo Ringer (Form Ventures), Clara Chappaz (Vestiare Collective), Christopher Salmon (Advisor to Michael Gove), Rachel Lowe (Vinyl Revolution), Rob Woude (Fonoa), and Diego Lijtmaer & Vernon Tjon-Soei-Len (Bezos.ai).
What has caused the Brexit problem
The consensus seems to be that Brexit in itself only makes shipping between Europe and the UK like shipping to the rest of the world albeit with its own set of rules. The problems business and consumers are facing come from a fairly drastic change to the way we trade coupled with little time for businesses to prepare or react which has left them floundering. This was broken down into the six following points by the speakers:
- The new rules were announced only a week before coming into place, this didn't leave enough time for businesses or even the Government to react and as a result everyone, from Logistics networks and marketplaces, to individual businesses are scrambling to catch up.
- Not all the rules are in place yet, we are still waiting till July 1st before the IOSS and OSS come into play in Europe.
- A lack of clear information and few people with a comprehensive understanding has not made it easy to correctly adapt to the changes.
- Big businesses have the money and resources to adapt but are held back by the complexities of their large operations.
- Small businesses are nimble enough to adapt but do not have the resources and cash flow required to understand or make the necessary changes.
- Businesses who previously relied on exploiting the benefits of the single market, and had built-up supply chain networks, infrastructure, and customer bases all centred around European trade are now suffering.
The effect on sellers and customers
The result is that many businesses are either operating in the wrong way when trading between the EU and UK causing excess costs, delays and a generally terrible customer experience, or they have halted cross-border trade altogether until they can figure out how to continue to operate in a profitable and customer-focused way.
You have to remember the blame is not held in one corner; customs costs are higher than they could be due to inefficiencies in the customs handling systems, marketplaces and sales channels have yet to adapt their technology to fully handle the changes, logistics companies systems are not designed to handle the extra data, and sellers are not correctly implementing the various processes they need to continue cross-border trade.
What does this mean in practice? Here are some of the common issues:
- Sellers are shipping DDU cross-border but not removing their VAT from checkout resulting in customers effectively paying VAT twice.
- Customers are not being told about the need to pay VAT and Duty at checkout (for DDU) so it comes as a shock when the goods arrive.
- These extra charges that come as a shock to customers have led to many refusing to pay them, and orders are being returned by the carrier at the seller's expense.
- Incorrect export information is causing delays and failed deliveries for packages. Currently, 5% of DPD cross-border shipments have wrong or incomplete information.
- Many sellers, especially small sellers, do not fully understand or know how to prove the rules of origin so customers are being charged duty on goods that should be exempt.
- Customs processing and handling fees charged by carriers and or brokers are a fixed fee, often around £12, that make cross-border sales of low-value items not financially viable.
Sellers are finding there is a lack of understandable advice and information and few people with a comprehensive understanding that can accurately answer their queries. Often the advice from Governments' seems to recommend using an agent to help navigate customs and VAT, but sellers are confused about where to find these agents and, already facing extra costs, can't necessarily afford the extra services.
Trouva have solved for customer experience the right way, their orders are shipped DDP so that the Customers pay once at checkout and get orders quickly, without extra costs on delivery. Doing this comes at a cost, there was an initial complexity, challenges and expense to set up their hybrid solution which combines VAT registrations in numerous countries and using carriers as brokers for countries that they don't hold VAT registrations in. They have also had to adapt their checkout process and technology to handle the variation of factors that affect the taxes and duty from country to country, and order to order. This is an expensive process.
Another solution mentioned is inventory splitting where a seller holds stock in both the EU and UK, thereby eliminating the need for individual orders to face the challenges and costs of customs. Of course, the VAT and duties still need to be paid but it is often easier for sellers to handle this for a bulk shipment of stock. Additionally, any carrier or broker handling fees are distributed across all the products rather than being paid on each, this makes the sale of low-value items financially viable. However, this solution only really suits sellers doing high volumes in both the EU and UK.
The current, relatively high, customs fees are partially due to low-efficiency manual customs processes and a lack of data systems. As customs is optimised over time, we should see a reduction in these fees. Government systems are certainly a limiting factor and the UK are working on the '2025 UK border strategy' with a focus on better data management and embracing innovation to make the UK border the most effective in the world.
The key to customer happiness is being transparent with what VAT and duties are due, who is paying them, and when. It is important that sellers have checkouts capable of applying the correct VAT for each customer location and shipping option. Where possible, tax and duty paid shipping provides the best customer experience for shipping cross-border.
A key takeaway is that it is all a matter of time before all the rules are all in place, systems and processes are ironed out, businesses fully understand the processes, and the technology and software to make it easy is built. While for now it is a less than ideal situation, in time it will be resolved. This being said, it is still a huge change and some businesses will need to reassess their business models to remain competitive and profitable, but those who can adapt quickly, there is an opportunity to get ahead of the competition and gain market share.
Bezos.ai have created a free (hopefully easy to understand) guide to help UK and EU e-commerce sellers to navigate post-Brexit sales. Download the Brexit Manual here
1] DDU (Delivery Duty Unpaid) or DAP (Delivered at Place) - A shipping option where the seller arranges export and delivery but the customer is responsible for paying any taxes and duties to customs.
2] DDP (Delivery Duty Paid) - A shipping option where the seller arranges export and delivery and pays the taxes and duties for the goods to clear customs.