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.