The State of Cross-Border eCommerce Post-Brexit

On January 15th 2016, the majority of the UK voted to leave the European Union (EU). Thus commenced a bumpy 4-year ride, with round after round of botched negotiations between the two entities, finally leading the UK to leave with a last-ditch deal in December last year.

With such a deal, however, many aspects of the UK’s interaction with the EU remain uncertain, begging the question: Just a little over half a year later, how is cross-border eCommerce faring?

Cross border Ecommerce

The perplexities of the EU-UK Trade and Cooperation Agreement (TCA)

By choosing to leave the EU, the UK also chose to leave the European Single Market and Customs Union, which allows for the free movement of goods and services between member states. Consequently, cross-border transactions post-Brexit have become a lot more complicated.

Anticipating this, the two entities signed the EU-UK Trade Cooperation Agreement (TCA) in 2020 after a few months of exhausting back-and-forth negotiations. This Brexit report by FXCM explains that the TCA covers a few key areas of cross-border interaction, including free trade, security, and horizontal governance — under certain conditions. For instance, although there will be no tariffs or quotas on traded goods, customs formalities, such as VAT, will be required upon import.

Needless to say, the TCA has left many grey areas, and that means many businesses in the UK have been experiencing a rocky post-Brexit transition. This is especially true in Northern Ireland, where businesses still have to comply with EU regulations to avoid having to put up a physical border between them and the Republic of Ireland.

As such, many businesses have suspended operations in the region. Others simply don’t have the resources to handle the transition, with high costs resulting in less goods being exchanged between the EU and the UK. And, in the case of eCommerce, these effects are exacerbated, as the UK’s eCommerce market has historically been the largest in Europe.

 

More opportunities for UK’s small businesses

This hurdle, however, has led businesses to increasingly focus on the domestic market. Small- and medium-sized enterprises (SMEs) in particular are relying on shifting customer preferences to get through the transition safely.

As previously discussed here on the blog, lockdowns have caused UK shoppers to rely on eCommerce, with 51% admitting they would continue to shop online even after the pandemic ends. And with today’s consumers increasingly considering personalised marketing and shopping experiences as key factors in their purchasing decisions, SMEs have a golden opportunity to compete with larger brands on a more even playing field.

Meanwhile, SMEs in both the UK and the EU may also try to take advantage of the reach of online shopping to increase international sales revenue. This means the eCommerce industry can expect a surge in demand for logistics partners who can pull off cross-border transactions.

 

New European eCommerce distribution centres

While SMEs step up to the plate, UK’s largest retailers are working hard to reconfigure their supply chains, as British products and services continue to be popular among consumers in EU member states. This means that retail distribution centres have to relocate, most likely to continental Europe.

By establishing a new entry point into the EU, retailers will no longer have to worry about the post-Brexit restrictions stipulated in the TCA. This report by The Guardian highlights Germany and the Netherlands as prime locations, given that German and Dutch are among the most commonly spoken languages in the region.

 

The future of eCommerce

Ultimately, market analysts believe that leading retailers in both the UK and the EU will determine the face of eCommerce post-Brexit. Although the focus of SMEs on the UK’s domestic market will help it grow at a compound annual growth rate (CAGR) of 6.9% between 2020 and 2025, efforts by top retailers to reorganise supply chains will inevitably lead to rapid development in the eCommerce industry in both territories.

This reimagining of the distribution of goods and services post-Brexit will, undoubtedly, lead to lowered costs and increased efficiency. As a whole, the bumpy transition posed by Brexit appears as though it will lead to a bright future — for businesses and consumers alike.

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Exclusively written for netpay.co.uk By Madge Riley

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