The State of Cross-Border E-Commerce in the EU
The state of cross-border e-commerce in the EU comprises a complex and dynamic array of factors that influence consumer behavior and the success of online retailers. E-commerce remains a popular trend in the EU, with many consumers turning to online retailers for shopping. This trend is particularly evident in the UK, where e-commerce accounts for a significant share of retail sales, and brands desire to reach customers through online channels. Let’s take a closer look at what’s happening throughout EU e-commerce and what companies can do about it.
Rising Cross-Border Logistics Costs
Logistics costs and delivery times are important factors that can influence the success of e-commerce in the EU. Rising logistics costs refer to the increasing cost of transporting goods from one location to another, including fuel, labor, and other expenses. These costs can significantly impact the prices of goods and services offered by online retailers, as well as the overall profitability of the e-commerce industry.
In recent years, logistics costs in the EU have been rising due to several factors, including increased demand for online shopping, the expansion of e-commerce into new markets, and the impact of global economic trends. Specifically, costs rose 5.4 index points quarter over quarter in 2022, hitting 129.7, which is also 26.4 points higher year over year (IRU).
This has led to concerns about the sustainability of cross-border e-commerce in the long term, as well as about the ability of retailers to offer competitive prices and delivery times to consumers.
Logistics costs and delivery times will continue to be a significant concern for the e-commerce industry in the EU. Fortunately, there are a few ways companies can combat these costs, including
- Pass charges to customers. One potential solution to the challenges of higher cross-border logistics costs and longer delivery times in the EU e-commerce industry is to pass some of these charges along to customers. Shippers can do this by using surcharges or other fees that are added to the price of goods or services. While this approach may not be popular with consumers, it can help online retailers cover some of their increased costs and maintain profitability.
- Increase the minimum order value. Another way to overcome higher costs and timelines is to increase the minimum order value for cross-border e-commerce orders. By requiring customers to spend a certain amount of money on qualifying for free or discounted shipping, retailers can encourage larger orders and reduce the impact of logistics costs on their bottom line.
- Leverage direct injection and dropshipping. Finally, retailers can leverage direct injection and dropshipping to improve their supply chain management and reduce costs. Direct injection refers to shipping goods directly from the manufacturer to the customer, bypassing traditional distribution channels. This can help to reduce lead times and logistics costs, making it easier for retailers to offer competitive prices and delivery times to their customers. On the other hand, drop shipping involves partnering with third-party suppliers to handle the storage, packaging, and shipping of goods on behalf of the retailer. This cross-border logistics strategy can also help to reduce costs and improve delivery times, as retailers can take advantage of the expertise and resources of their partners.
Uncertainty & Complexity Over Cross-Border Logistics of Warehousing
Uncertainty and complexity over cross-border warehousing and shipping can be a major challenge for businesses engaged in cross-border e-commerce. Here are a few ways to address these issues:
- Decentralize your warehousing and distribution strategy: Instead of relying on a single, centralized warehouse, consider decentralizing your warehousing and distribution strategy. This can help reduce the risk of delays and disruptions and make it easier to adapt to changes in demand or supply.
- Increase traceability of goods for EU storage and warehousing: Ensuring that your goods are properly tracked and traced throughout the storage and warehousing process can help to reduce uncertainty and complexity. This can be especially important when dealing with cross-border shipments, as it can help ensure that your goods are properly accounted for and that you comply with EU regulations.
- Trouble finding proper and available storage for goods: If you’re having trouble finding adequate storage, it may be worth considering outsourcing fulfillment and optimization to a third-party provider. This can help ensure access to the storage and warehousing facilities you need without heavily investing in purchasing cross-border logistics infrastructure.
- Consider outsourcing fulfillment and optimization to a third-party provider: Outsourcing fulfillment and optimization to a third-party provider can help to reduce uncertainty and complexity by allowing you to take advantage of their expertise and resources, including payment methods and customs clearance capabilities. This can help to improve the efficiency of your supply chain and can also help to reduce the risk of delays or disruptions.
It’s worth noting that 21% of online shoppers abandon purchases due to delivery issues, according to a recent survey. By addressing the challenges of cross-border warehousing and shipping, businesses can help to reduce the risk of delivery issues and improve the overall customer experience.
Handling the VAT-Related Issues in Cross-Border E-Commerce
As with any process for freight moving, e-commerce markets in the e-commerce are subject to different regulations and fees. The most common fee associated with cross-border transportation is likely the VAT tax. There are several common problems that businesses may encounter when managing VAT costs in a global market (byrd technologies):
- Complex VAT rules and regulations: VAT rules and regulations can vary significantly from country to country, and it can be difficult for businesses to keep up with the latest changes. This can lead to compliance issues and potential fines if a business fails to apply the VAT correctly.
- Difficulty in determining the correct VAT rate: In some cases, it can be challenging to determine the correct VAT rate to apply to a particular product or service. This is especially true when dealing with complex or multi-stage transactions.
- Administrative burden: Managing VAT can be time-consuming and burdensome for cross-border logistics businesses, especially when dealing with large transactions. It can be difficult to keep track of all the necessary documentation and ensure that the correct VAT is applied to each transaction.
- Potential for errors: Even with the best intentions, businesses can make mistakes regarding VAT. This can lead to compliance issues and potential fines if the errors are not caught promptly.
EU cross-border e-commerce naturally involves a careful understanding of VAT, as it can significantly impact a business’s costs. It’s important for businesses to be fully aware of the VAT rules and regulations that apply to their particular products and services and to ensure that they comply with these rules at all times. This may require working with a VAT professional, such as a customs broker or supply chain partner. Such parties help to ensure that all necessary cross-border shipping and documentation are in place and that the correct VAT is applied to all transactions.
Businesses can take a few key steps to protect against VAT issues. These include:
- Get an EORI number: EORI, or Economic Operators Registration and Identification, is a unique identification number required for businesses that engage in cross-border trade with the European Union (EU). To get an EORI number, businesses must apply through their national tax authority.
- Classify products based on customs tariff numbers: It’s important for businesses to properly classify their products based on the correct customs tariff numbers. This ensures that the correct VAT rate is applied to the goods and helps to avoid any potential disputes with customs authorities.
- Enclose the commercial and pro forma invoice with all consignments: A commercial invoice is a document that outlines a sale’s details, including the sale’s price and terms. A pro forma invoice is a preliminary invoice issued before the goods are shipped. Shippers should include both documents with all consignments to ensure that the correct VAT is applied.
By taking these steps, businesses can help to ensure that they follow VAT regulations and avoid any potential issues that may arise in the course of international trade. It’s also a clever idea for businesses to work with a knowledgeable VAT professional or consult with their national tax authority to ensure that they are fully informed about the latest VAT regulations and requirements.
Streamline EU E-Commerce and Cross-Border Logistics With ModusLink
E-commerce in the EU is a complex and dynamic industry, with a wide range of factors that can influence consumer behavior and the success of online retailers. From rising logistics costs and delivery times to concerns about the environmental and economic impacts of e-commerce, there are many challenges that businesses must navigate to succeed.
Fortunately, solutions can help businesses streamline their operations and overcome these challenges. One such solution is ModusLink, a network and transportation partner that can help businesses optimize their supply chain management, reduce costs, and improve efficiency. Connect with an expert at ModusLink to get started today.
byrd technologies. Guide For Cross-Border Trade in the European Union. 2022. 13 December 2022. <https://getbyrd.com/en/cross-border-ecommerce-eu-ebook/?hsCtaTracking=749e20c5-d0f2-455f-a353-d8d206c60894%7C4b6651f5-26e2-41b2-a670-621b8a73fcbb>.
IRU. 3 November 2022. IRU. 16 December 2022. <https://www.iru.org/news-resources/newsroom/european-road-freight-rates-soften-after-hitting-another-all-time-high-q3>.
Content is the opinion of ModusLink Corporation and is not intended to act as compliance or legal advice.
Free Trade Zone – Is Your 3PL Giving You All the Warehouse and Distribution Cost Savings You Deserve?
Free trade zones, or FTZs, are controlled places in a country that offer warehouse and distribution services for goods from foreign markets, excluding them from paying taxes on those goods. The value of such operations in 2021 was evident, with 1,200 active operations, 197 FTZs, and 356 production operations reporting in the US, says Site Selection Magazine (Forster). And they’re integral to maximizing global fulfillment too.
The value of shipments moving through free trade zones was over $835 billion compared to just $625 billion in 2020. This data supports the importance of trade zones in international trade. Generally, any trading party can create free trade zones around major seaports, international airports, and other areas where customs activities are higher.
With the economic benefits of free trade zones now more evident than ever, it’s essential to ask: “is your 3PL taking full advantage of the cost savings that free trade zones can provide?”
The answer, unfortunately, is only sometimes yes. Many third-party logistics providers are still charging customers exorbitant shipping fees and not leveraging the cost savings opportunities offered by FTZs. Still, what does that mean, and what’s necessary to reap the benefits of the cost-saving areas?
I. Initial Investment
The ideals behind free trade zones sound fantastic, but the number of free trade zones is far from the total number of all areas where a free trade zone may be appropriate. According to BBC News, such zones, also known as freeports, “are allowed in the European Union – with around 80 sites based in EU countries (Seddon) .”
Still, there are significant initial investments from a time and resources perspective that shippers should consider. These include:
- People and staffing requirements include skilled workers and managers that will do the daily warehouse operations.
- Strict processes and a paper trail to ensure compliance with regulations and track all transactions.
- Creating secure areas within a warehouse may be necessary to store goods, especially high-value goods and those subject to additional regulation, such as pharmaceuticals.
- Approval from governments, including the United States and the EU’s free trade zone board, legalizing the free trade zone might include submitting extensive records, proving the value of creating such zones, and conducting detailed analyses on its risks.
II. Benefits of a Free Trade Zone
- Bringing separate components and forming kits when shipping out – components are cheaper to import than kits / finished goods.
- Moves Value Added Services closer to the customer in many cases – Don’t have higher value material being imported and sitting waiting for orders.
- Reduce or eliminate certain duties and Value Added Taxes (VAT).
III. Challenges and Limitations
Pushing a free trade zone is only half of the battle. Managing a free trade zone can impact warehouse and distribution operations. Various compliance requirements, security protocols, and inventory systems need to remain compliant. Maintaining control over warehouse access and personnel procedures is also essential.
The ever-changing global trade policies and tariffs also mandate continuous monitoring and tracking via analytics and regular reporting. There is a constant need to monitor the external environment for developments and policy changes. Further, proper planning and implementation also imply a greater need to understand whether they add value to operations.
IV. Choosing the Right 3PL
Choosing the right 3PL to create and manage a free trade zone is of utmost importance. Your 3PL will have long-lasting implications for the success of a warehouse and distribution business. A 3PL provider with the experience and resources to handle foreign freight forwarding, customs clearance, and other services specific to a free trade zone is essential.
Their experience helps warehouse and distribution operations meet their goals. Thus, companies must conduct proper research to identify a 3PL familiar with local regulations, government programs, and global compliance requirements for such zones. They should also follow a few specific steps for choosing the right 3PL and maximizing the relationship:
- Assessing the particular needs and conditions of your business
- Researching and evaluating potential 3PL providers.
- Verifying the 3PL’s experience and expertise in FTZ setup and operations.
- Inquiring about their compliance and security measures.
- Asking for references and case studies from previous clients.
- Negotiating and evaluating the cost-benefit of the services offered by the 3PL.
Choose ModusLink for Help in Setting up and Leveraging a Free Trade Zone for Your Warehouse and Distribution Needs
A free trade zone is a must-have for today’s companies to reduce confusion over customs duty processes within the global supply chain. Further, customs territory differences and requirements may vary by region. It’s essential to use the latest technology and transportation management service providers, such as ModusLink, to maximize their value. Request more information to get started today.
Forster, James. Free Zones: Global and US Leaders Think Outside the Box. November 2022. 16 January 2023. <https://siteselection.com/issues/2022/nov/free-zones-global-and-us-leaders-think-outside-the-box.cfm#:~:text=%E2%80%9CThere%20were%20197%20FTZs%20active,%24625%20billion%20the%20previous%20year.>.
Seddon, Paul. Freeports: What are they and will they help the economy? 13 January 2023. 16 January 2023. <https://www.bbc.com/news/uk-politics-55819489>.
Content is the opinion of ModusLink Corporation and is not intended to act as compliance or legal advice.