Distance Selling – Bordering on the Difficult

On 24th August 2017 by good2us

It is said that there are three important factors in selling – location, location, location. With the Internet physical location becomes irrelevant .but physical borders do.

The shipping and air-cargo business has been in the doldrums for some time as a result of the slow overall growth in trade in recent years.

However, the rise of cross-border e-commerce has meant booming business for express-delivery firms. At the start of 2017 UPS revealed record revenues for the fourth quarter of 2016; FedEx and DHL are expected to report results just as buoyant.. Since 2008 half of the increase in express-delivery volumes have come from online shoppers buying from another country.

The lowering of trade barriers has helped all this. When DHL and FedEx started in the 1970s there was little demand for international express deliveries. Packages often got stuck in customs for weeks and were heavily taxed. The expansion of free-trade areas, lower tariffs and the Internet have brought years of growth. That may be about to change as the election of Donald Trump’ with threats to raise tariffs on goods from China and Mexico and the UK’s decision to leave the EU customs union there are widespread fears that all that is about to change.

More physical border checks between Britain and Europe are of little concern. Most packages arriving in Britain have already been checked for contraband and goods from outside the EU go through customs 95% of the time without any inspection or delay. But once outside the customs union costs will probably come from long wrangles over which of 19,000 customs codes should be applied. For example, Halloween costumes from China often get stuck at Britain’s border as customs officials work out whether they are toys or children’s clothes, which attract different duties.

This complexity may well force up costs, Sending an item from Britain to Switzerland (outside the EU) costs 150% more than it does to Italy (inside the EU).

A more serious problem arises in the event of higher tariffs if a trade war broke out between the USA and China. This would hit the massive volume of consignments that DHL’s, FedEx’s and UPS’ planes carry every day in and out of America.

At the moment, a customs exemption exists in the USA for packages worth under $800. So Chinese watches imported in bulk into the USA pay a higher tariff that can be avoided by an American ordering direct from a Chinese online retailer for delivery direct to their home.

If Donald Trump is serious about cutting imports, he could drop this exemption or lower it by executive order. This would pose the likes of DHL with a real problem.

Fred Smith, FedEx’s founder and CEO, is now a campaigner for free trade. And as delivery costs mount and reduces the access many British online retailers currently have to the single market, .so the business model of many online retailers becomes less robust. Just another of the costs of leaving the EU the Brexiteers haven’t considered.

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