The UK’s decision to leave the European Union, which came into effect at the beginning of 2021 under the terms of the UK/EU TCA, has significantly impacted UK e-commerce in several ways, affecting both domestic and international operations. Here’s a breakdown of the key effects:

1. Cross-Border Trade Challenges

• Increased Costs: UK e-commerce retailers face increased costs when exporting to the EU due to tariffs, customs duties, and VAT charges. Similarly, EU customers buying from UK sellers have seen additional charges, making products more expensive.
• Customs Delays: New customs procedures as a result of the UK’s choice to stay outside the EU customs union have led to delays in cross-border shipments, impacting delivery times and causing disruptions in supply chains. This has made some EU customers reluctant to purchase from UK-based e-commerce platforms.
• Return Complications: Returning goods across borders has become more complex and expensive, leading to a drop in sales from EU customers who are now more hesitant due to concerns about the ease of returns.

2. VAT Changes

• VAT Registration Requirements: The UK’s exit from the EU VAT system means that UK sellers exporting to the EU need to be VAT registered in each EU country where they exceed specific sales thresholds. This has increased the administrative burden and costs for e-commerce businesses.
• OSS (One Stop Shop): The EU introduced the One Stop Shop (OSS) scheme to simplify VAT compliance for non-EU sellers. However, UK sellers still need to adapt to new VAT obligations, adding complexity to their operations.

3. Supply Chain Disruptions

• Border Controls and Import Delays: New border checks have disrupted the flow of goods, resulting in longer delivery times and increased operational costs for e-commerce companies relying on international suppliers.
• Stockpiling and Inventory Management: Many businesses resorted to stockpiling to mitigate potential disruptions, tying up capital in inventory and causing storage issues.

4. Increased Costs and Administrative Burdens

• Higher Shipping Costs: Shipping rates for parcels between the UK and EU have risen due to additional customs fees and handling charges. This has led to higher prices for consumers or reduced profit margins for sellers.
• Administrative Complexity: E-commerce businesses have had to adapt to new paperwork, regulations, and compliance requirements, leading to increased costs and resource allocation to manage these changes.

5. Shifting Trade Relationships

• Loss of EU Customers: Many UK e-commerce businesses have seen a decline in sales from EU customers due to increased costs, delivery delays, and perceived inconvenience.
• Focus on Domestic and Non-EU Markets: In response, some UK e-commerce companies are refocusing their efforts on domestic sales or expanding into non-EU markets to offset the loss of EU trade. Several providers such as Globalfy and USADrop now offer relatively painless access to the US market for example as traders seek to replace lost European business.

6. Impact on Smaller Businesses

• Challenges for SMEs: Smaller e-commerce businesses have been hit hardest, as they often lack the resources to manage the increased costs and administrative burdens. Many have struggled to adapt, and some have stopped selling to the EU altogether. Setting up an registered EU business and in many cases duplicating warehousing are an obvious but costly workaround.

7. Changes in Consumer Behavior

• Consumer Hesitancy: EU consumers have become more cautious about ordering from the UK due to concerns about extra charges, customs delays, and difficulties with returns, leading to a decline in cross-border sales.

Overall Impact

While some larger e-commerce companies have adapted to the changes brought about by Brexit, smaller businesses have struggled with increased costs, supply chain disruptions, and complex regulatory requirements. As a result, Brexit has generally made it considerably more difficult and expensive for UK e-commerce firms to trade with the EU, leading to a reduction in sales, changes in trading strategies, and a shift toward focusing on domestic markets or exploring new international opportunities.

Personally I have no doubt at all that the UK eCommerce sector, not to mention the wider economy would benefit enormously from rejoining the Single Market and the Customs Union and suspect it is only a matter of time before “trade gravity” becomes overwhelmingly influential in shifting political priorities.