Amazon is the largest online retailer in Europe, with revenue of $28bn.1 Until the end of last year, it’s been able to have minimum fulfilment centres in Europe and offer rapid delivery to the whole continent. But that’s all changed. Free movement has stopped and goods will now take longer to travel. Amazon is setting up additional warehouses in the UK and across Europe to maintain smooth operations.1
If you’re an Amazon seller, Brexit will have a big effect on your trade cross border between the UK and Europe. What else has changed? And what should you do to stop your sales being disrupted? We’ll explain.
Cross border fulfilment has changed
Amazon has announced it will be stopping EU fulfilment through FBA; the Amazon fulfilment service.1,2
Amazon’s UK FBA operations will be split from the EU with no more EFN (European Fulfillment Network) and an end to Pan-European FBA inventory transfers between the UK and EU.3
EFN allows you to fulfil orders from any Amazon European marketplace, while you ship your goods to Amazon’s fulfilment centres in just one country such as the UK. This Brexit bombshell has meant effectively your sales opportunity from selling on Amazon UK dropped from 446 million EU consumers to 66 million brits. Ouch.3
Aside from the impact on sales, it’s also brought both logistical challenges and added responsibility of managing inventory in different locations.1
You won’t be able to use Amazon’s fulfilment network to move goods across the UK-EU border. To continue doing so, you’ll need to split your business just like Amazon. If you sell on multiple EU sites, you’ll need to make sure your stock levels on both sides of the UK border are kept high and also navigate the new logistical challenges. Some sellers will find the changes and FBA restrictions, more challenging than others.2
The double whammy is that previously with the FBA, your products in an UK Amazon fulfilment centre became eligible for Prime and visible to many more customers, with all the benefits that brings like faster delivery for only the cost of UK fulfilment fees. This has now ended for stock in Amazon UK warehouses.
The difference between EFN and Pan-European FBA
EFN is effectively keeping your stock in the UK and picking up the shipping cost when you get an international sale. Pan-European FBA means only paying local shipping charges but Amazon can move your stock out of the UK into Europe so that it is closer to the end customer and can be fulfilled quicker. EFN is an easy way to sell internationally. Pan-European FBA generally involves the cost of having higher levels of inventory.3
With both of these programs ending, you’ll need to send some of your stock to FBA in the UK and some to FBA in at least one other European country. A bit of a pain. This will unfortunately mean higher inventory holding and additional costs. Sending part of your stock to a warehouse in Europe obviously increases your shipping costs.3
This obviously works the same way if you’re based in Europe. If you’re in Germany, France or elsewhere, you’ll also need to split your stock into European mainland stock and UK stock and send to at least two Amazon FBA warehouse – one in the UK for selling to UK customers and another on the continent for selling to mainland Europe.3
What should you do to stop your sales being disrupted?
Have you got the capital for splitting your stock? If not, rather than having to withdraw from certain markets, you may want to consider a third-party logistics partner. Make sure you secure a resilient supply chain with an established partner like Omnipack – especially given the recent additional challenge of COVID. One that offers everything that you relied on Amazon for eg warehousing, shipping and distribution services.
You can also consider fulfilment by other means. Fulfilment by merchant (FBM) is the traditional alternative to the FBA. Sellers are responsible for fulfilling orders themselves, shipping their products directly to customers. The advantages are that you avoid FBA fees and there are no limits on stock volume. But it can be difficult to manage and more expensive.2
There is also seller-fulfilled prime (SFP). This is best for experienced Amazon Sellers who already sell high volumes through FBM. You need to meet Amazon high standards for this, ie deliver 99% of products on time and keep to Amazon’s strict return policies.
The Amazon UK VAT requirements are changing
The second big change is to VAT. Online Marketplaces (OMPs) in the UK will now be liable to collect VAT on behalf of sellers. Based on the EU-UK Trade and Cooperation Agreement, the UK is free to change the way it collects VAT, tariffs, and other duties on goods from overseas (EU included). And it already has.
The UK’s new trade terms affect all sellers, not just those from overseas. For VAT, the UK is using the same rules as the EU used for online purchases from non-EU countries. This is what they look like.
UK Customs threshold for VAT
|>£135||Import VAT is collected at the border, along with any duties|
|≥£135||Amazon and all other Online Marketplaces (OMPs) must collect VAT at the point of sale, wherever the products are stored|
|<£15||Low-value consignment relief (LVCR) no longer applies; VAT collected at point of sale; passes through UK customs quickly|
|0||Amazon will collect ‘sales VAT’, if item stored and sold in UK by non-UK entity|
The EU won’t implement these rules until July, but the UK are already up and at it, which means Amazon (and other OMPs) is too. As are border officers.4-6
This isn’t an absolute rule. If companies are using the VAT flat rate scheme, they will differ.4 Also if the goods sold are non-controlled, then the UK is waiving supplementary customs declarations until July 2021. So, importers who use delayed filing can put off declaring and paying duties and VAT until then if they choose.4-6
What do these VAT changes mean if you’re an Amazon seller?
Amazon UK now adds 20% to the price of items sold by non-UK sellers. Consequently, overseas sellers are finding it hard to compete with domestic sellers. Amazon UK has started charging EU buyers a big import fees deposit with a lengthy 60-day waiting period for refunds. Though permitted in the Ts ad Cs, this obviously goes down like a lead balloon with customers. Unsurprisingly, orders from the EU are falling as buyers are put off shopping in the UK. Sellers may potentially end up undercutting or disposing of once-popular FBA and MFN merchandise that can no longer be sold abroad. This will affect revenue and also sales rankings.4-6
What should you do to help sales?
Make the sales tax obvious
So use large print on your customs declaration and add a copy of your invoice in a clear envelope to the outside of every box – this makes it obvious Amazon has already collected tax and stops your delivery being delayed.
Items valued over £135 always go through customs so import VAT is applied at the border. Attaching an invoice to the outside of the box cuts down on tampering at customs checks.
Keep the price under £135
You don’t want to have to charge extra or end up paying the import VAT yourself. Be transparent on the breakdown of the price re shipping, insurance tax and other charges. Bear in mind that the VAT threshold is per consignment. So if two items in the same box takes you over the £135 threshold, consider sending it in two boxes. Obviously this isn’t very eco-friendly so offset this by switching to recycled packaging or making other green measures.
Maintain cross-border trade
There are several reasons why domestic trade is expected to thrive at the expense of international trade. Perhaps some suppliers don’t want to charge higher prices and risk disappointing their customers. Others can’t be bothered with the extra paperwork hassle. This potential withdrawal of some suppliers means there is a big opportunity for those bold enough to seize the chance to increase their customer base by trading with the EU. 4-6 For example, iconic British brands like John Lewis – with their strapline ‘never knowingly undersold’, are now no longer shipping to Europe. 7 And International retailers like ASOS are stopping deliveries to Europe from their UK sites, and instead directing buyers to national versions in, for example, France.7 A leading French consumer website cited the example of a pair of trainers ordered from a UK website for £270 but manufactured in and shipped from China, saying customs duty of 16.9% and 20% French VAT would bring their cost to about £378.7
Beware Brexit tariffs
The signing of the EU-UK Trade and Cooperation Agreement (TCA) deal caused a collective sigh of relief for many. But though it benefits some retailers, others, like many Amazon sellers, are unprotected. Prohibitive tariffs based on the ‘rules of origin’ framework4-6 exist for Amazon sellers and all those who source materials from outside the EU & UK. if any components or raw materials are sourced from elsewhere (e.g. China), the product may not benefit from the trade deal.6
The rules of origin are decided depending on the type of product and the HS code. This being customs, this even is made up of five elements to the rules (sigh) depending on things like whether the product was obtained entirely from the signatory country. You can look up Product Specific Rules8 in ANNEX ORIG-2, p. 423 of the TCA link to https://www.gov.uk/government/publications/rules-of-origin-for-goods-moving-between-the-uk-and-eu/product-specific-rules
Products created or processed in the EU from non-originating materials are considered ‘originating’ in the UK and enjoy preferential treatment. The reverse is also true. So, if a product is UK made or processed, it’s given ‘originating’ status in the EU. Once a product has ‘originating’ status, it’s considered to be 100% originating, whatever the weight or value of its non-originating components.6
When trading across the EU/UK border, importers can claim preferential treatment right away under the TCA or within 3 years from import.
To claim they must show the exporter’s proof of origin, which consists of these 3 declarations:
- Customs declaration
- Origin declaration (Statement on origin)
- Supplier’s declaration
Expect currency volatility – and exploit it
It’s not all bad news. A weaker pound could boost exports. The pound moved to a 31-year low against the US dollar in October 2019 and is almost on a par with the euro. What this means is that although import to the UK is expensive, British goods are cheaper and more attractive to European shoppers. So diversifying into European markets if you’re not there already, is still a good move. It may be possible to generate more revenue from US sales too.
Like some logistics support?
If you’d prefer to outsource your logistics and avoid some of this new Brexit-triggered hassle, why not talk to us? Omnipack have systems already integrated and ready to go providing full order fulfilment for businesses selling on Amazon. Our trained personnel can take the responsibility off your desk. Find out more about what we offer here.