How is Brexit affecting Amazon sellers? It’s more than VAT and tariffs. Our Brexit analysis continues as we look at the bigger picture. Learn about the Brexit Blues, and what you can do to protect your business from it.
Brexit Day was last year, on Jan. 31.
But the end of the transition period was Dec. 31, 2020.
So, for most Amazon sellers, Brexit o’clock was two months ago.
And much has changed since.
Brexit may be old news in the EU, but it’s still making the headlines in the UK.
We predicted much of this turmoil in our Brexit Blues post nearly 5 years ago. But what we didn’t anticipate was the pandemic.
So, in today’s Brexit analysis, we’ll try to find out just how is Brexit affecting Amazon sellers, now that there’s a pandemic in the mix?
Brexit affecting Amazon Sellers & COVID
In our series titled How Will Brexit Affect Amazon Sellers?, we look at VAT and tariffs. These are the two main post-Brexit issues cited by Amazon sellers.
Today we’ll look at three other problems faced by businesses in the UK: more red tape, cargo troubles, and workforce changes.
More Red Tape for Business Owners (aka rules, standards, and bureaucracy)
Brexit means British people can’t have bank accounts or settle in EU countries as easily.
And some EU taxes are higher for non-residents (e.g. 24% vs. 19% in property tax in Spain).
This has a knock-on effect on the number of subsidiaries and warehouses set up across the border.
Also, since Brexit, UK companies are subject to UK GDPR law.
And tax filing has changed. To file your taxes, you must hold a British passport or driver’s licence. Otherwise, you must register with GOV.UK Verify and let companies like the Post Office or Digidentity take a photo of your face and documents, and share your personal information.
Cargo Conundrum
SMEs in the UK are faced with more tough choices.
According to the Financial Times, some enterprises are registering for VAT in their most lucrative EU markets.
So, they’re absorbing the extra costs of customs duties for EU shipments and pushing their bottom line in the red.
Others have stopped shipping to the EU to avoid paying double duty rates.
And some decided to relocate or invest in warehouses in The Netherlands.
Unsurprisingly, there are no accounts of companies starting to make their own products in the UK, from scratch.
Then there’s inspection and testing.
BylineTimes say the UK’s testing bodies can no longer certify product compliance with EU standards. So, UK companies need EU-based agents or subsidiaries. The kind that grants certificates and accepts liability for them.
As for EU companies, they’re generally not as badly affected.
Cargo and freight companies across Europe simply send full trucks to the UK and bring them back empty. Why? Because it’s cheaper than having them stuck in one of Kent’s three lorry parks.
But that’s not all.
In its Brexit Analysis webinar, Tamebay reports that UK companies are faced with many more, less obvious issues due to Brexit.
Some may go away as the UK authorities catch up with new requirements, but most are permanent changes:
- Some companies weren’t aware that ‘tariff-free trade’ only applies to goods manufactured entirely in the UK or the EU.
- Even if their products are tariff-free, companies must still make customs declarations; something they didn’t anticipate.
- Not all companies budgeted for a 5% to 15% tariff on shipments of non-EU/UK goods worth under €150, or for carrier and broker fees.
- There’s confusion for companies that make several products with distinct tariff rates (e.g. tariffs don’t apply to perfume and alcohol, but they do to rubber and other chemical products).
- It’s cheaper to send some shipments to the Republic of Ireland from The Netherlands rather than directly from the UK.
- Some UK brands stock all their products from a warehouse in the EU. For them, selling to UK buyers means paying import duty before the goods arrive in the UK.
- Rules of origin are complex. If, say, the EU has a trade deal with a country in Asia, but it’s not bilateral, shipments are only import tariff-free for the EU.
- People in the beauty industry are surprised at the amount of paperwork they need. Cosmetics and sanitary products are some of the most troublesome.
- Likewise, garden centers and makers of food, pet and phytosanitary products were hit with requirements for licences and a ￡180 health certificate, in some cases.
- The logistics and IT infrastructure simply isn’t in place (e.g. CDS/CHIEF non-functional), and some companies are faced with capacity issues.
- Due to errors in data entry in CHIEF, many containers coming from Asia were reportedly delayed.
- Every Monday, there’s a spike in shipment volume at the border, causing bottlenecks.
- Higher back office costs, admin costs and clearance fees can double the asking price for customers in the EU, which lowers the competitiveness of EU exports.
- Some parcels are being rejected by carriers or customs officials, or returned by EU customers who don’t want to pay extra fees.
- Returns to the UK are very costly and time-consuming, because the paperwork must be filled in for inbound packages as well.
- Returns to the EU are seamless and there is no import carrier relief, so people prefer to move warehouses to the EU.
- Platforms like Amazon will not allow sellers to charge customs duty and clearance fees after an order is placed, so some retailers are cancelling orders from the EU.
- Amazon sellers are looking to move some of their goods to Europe, so that they don’t need to absorb any duty fees on behalf of EU buyers.
- Using deferred services (duties and taxes paid in advance) is a cost-effective alternative for low-value goods, but delivery takes an extra few days.
Labor Market Changes in the UK
EU ‘freedom of movement’ gives non-residents the right to travel to study, work, and live in any EU country.
But when it was a member state, the UK didn’t apply the rule to all other members at the same time.
And this ‘hostile’ approach is affecting post-Brexit staffing. Why?
History of the EU Immigrant Workforce in the UK in the Lead-Up to Brexit
To start with, many Europeans were only really free to live in the UK from 2014. This is partly due to the UK’s penchant for the points-based immigration system (PBS). The UK government used it from 2008 to 2014 to sift out ‘skilled’ immigrants.
The UK applied the maximum number of years for PBS under the Treaty of Accession, and then (unlawfully) extended it. So, EU nationals were treated like non-EU nationals for up to 9 years. They were given registration cards (Yellow/Pink card) and allowed to stay in the UK only if they satisfied PBS criteria.
To sidestep these restrictions, many EU nationals, ‘skilled’ or not, applied to work as self-employed, often through unscrupulous HR agencies. They earned less and had no employee benefits (dental, paid leave, etc.). A large chunk of the EU nationals now in the UK make up this skilled but undervalued workforce.
By the end of 2020, 3.8 million EU nationals applied to stay in the UK under the EU Settlement Scheme. About 500,000 left the country in 2020 alone, according to the Migration Observatory, though ESCoE suggests it might have been many more.
And few applied for UK citizenship. In 2020, GOV UK reported fewer than 150,000 applications. With new guidelines to only grant citizenship to EU nationals who have stayed in the UK for 10 years, applications are set to plummet this year. But there’s more.
Nearly half of the people who chose to stay in the UK were only given pre-settled status. This means that they’re not entitled to benefits if they stop working for any reason, be it job loss, furlough, maternity leave, or ill health. That’s 1,614,600 people who are job-dependent.
As for new arrivals, EU nationals are no longer free to enter the UK to work, study, or put down roots. They must now apply for a visa and fulfill the – you guessed it – points-based immigration system. Otherwise, they’ll be subject to the ‘Hostile Environment’ policy.
The result? What some call the ‘EU Exodus’.
While people have been leaving the UK in droves since the referendum, this post-Brexit wave is expected to be worse.
This generation of experienced EU nationals has free entry in 27 European countries.
In their eyes, the visa system is antiquated and out of touch. And the UK’s visa system, with its focus on the ‘skilled’ rather than the needed, does not sound good.
So, why does this matter?
Most EU nationals are of working age.
They made up 2.31 m of the UK’s workforce in 2020 (about 7%).
But seasonal workers and people who left in 2020 are not included in this figure. Or in the unemployment rate. Or in any of these labor stats:
- 4.6 million furloughed (15% of workforce).
- 578,000 job vacancies.
- wages going up by 3.6%
Because these stats don’t take all workers into account, they don’t paint the whole picture.
For instance, wages may be going up because non-EU workers are putting in more hours. Perhaps to make up for the loss of their EU colleagues. They might even be paid less per hour.
But by the time the UK census happens next month and travel surveys resume, the ONS won’t have a clue how many EU workers left.
Even then, the data won’t include temporary workers or those who came and left in the 10 years leading to the census, without registering.
But as The Financial Times points out, it’s safe to say that the job market is changing due to UK visa requirements, no incoming seasonal workers, and EU residents leaving.
Here are 10 likely labor force changes due to Brexit and Covid:
10 Likely Labor Force Changes in the UK Due to Brexit & Covid
- EU nationals are shuttering their businesses and leaving the UK for good.
- Some are moving to regions that support free movement (Scotland and N. Ireland).
- Others are switching from city jobs to factory jobs in rural areas.
- Some EU nationals are quitting due to extra childcare responsibilities.
- When COVID-19 travel restrictions lift in the UK, many more are expected to leave.
- Settled people are likely to stay, but their stay depends on the strength of the ￡.
- Some furloughed EU nationals may wait until the end of the furlough scheme to see if they’ll still have a job.
- Employers contemplate using British agency workers instead, which means worse working conditions overall and even lower pay rates for the locals.
- Large companies might invest more in machinery to recoup productivity levels, which would put jobs at risk for everyone.
- Output per worker will probably continue to decrease from -6.3% YoY in Q4 2020, causing more UK businesses to outsource their operations.
10 Ways to Tackle the Brexit Blues
For those companies in the UK that want to continue serving their EU customers in spite of these challenges, all is not lost.
There are ways to prepare for higher costs, relocation, and staff shortages:
- Switch to paperless trade. Use software tools to share shipment information with carriers and customs.
- Offer volume discounts and shipping freebies during or after checkout to lower the overall cost of shipping across the border.
- Look for customs simplifications to reduce or eliminate your VAT and duty costs. Deloitte has a few examples and specialists like these may be able to help.
- Switch from a single carrier to a multi-carrier partner. This may help you reduce bottlenecks and address capacity issues.
- Upgrade your tech with end-to-end platforms. They should offer multi-carrier labelling. Some have simultaneous tracking for multiple shipments. Whatever the choice, it should translate into more delivery options for buyers.
- Use a flexible automated repricer like Sellery. Make sure to include duties and taxes into pricing rules.
- Adjust delivery estimates and customer reply templates to reflect customs delays (at least 2 days) if you use deferred duty delivery.
- Make contingency plans. Budget for hub investments in Europe. Partner with EU managers and business owners to make setting up a company abroad easier.
- Give your EU employees the option to relocate and work at an EU warehouse. Perks might include lower income tax, cheaper housing, local produce, better weather, etc.
- If you have 500-600 orders/ month from EU buyers but can’t set up a warehouse on the continent, use a 3rd party European facility. This would reduce cross-border shipping costs.
This last option might be the easiest solution. Especially if you’re an Amazon seller with a strong European customer base. Watch Tamebay’s Brexit Analysis webinar to find out more about order consolidation and outsourcing to Europe.
But make sure your choice of provider offers warehousing and fulfillment (pick, pack, dispatch) services.
Next-day delivery across Europe, click-and-collect options, and shipping to the rest of the world are also a must.
Finally, ask if they manage returns and consolidate them back to the UK.
This concludes our first Brexit analysis for Amazon sellers, but please follow our blog for regular updates.
Melanie takes an active interest in all things Amazon. She keeps an eye on the latest developments and keeps Amazon sellers up to speed.