Photo: © Richard Van Der Spuy
EU customs changes on 1 July present a “real margin issue” when it comes to returns and tariff refunds for those selling into the bloc.
There are warnings that retailers which fail to amend customs processes will face “even bigger margin pressures”.
On 1 July, the EU will terminate its de minimis exemption for low-value imports, meaning parcels valued at less than €150 will be subject to a flat customs duty of €3, with a handling fee, expected to be €2, taking effect in September.
Al Gerrie, CEO of returns and post-purchase network ZigZag, told The Loadstar: “Retailers need to stop treating duty drawback as a niche customs issue. It is a real margin issue.
“If you are selling into the EU, paying duty, and then getting a meaningful percentage of those goods back as returns, you need to know whether you can recover that duty. If you cannot, that cost just sits in the business and eats into margin,” explained Mr Gerrie.
Part of the issue is that the €3 per item duty is only refundable if the good has been shipped ‘faulty’, challenging the return-focused retail environment that has dominated ecommerce for more than a decade.
Those The Loadstar spoke to warned that either the consumer or the retailer would be left to shoulder the €3 for items sent back for any other reason, with consumers likely to avoid outlets that left them with the charge.
Mr Gerrie continued: “€3 per item might sound small, but for low-value ecommerce, multi-item orders and high-return categories, it can add up very quickly. It also changes the viable economics of some cross-border sales. Returns have to become part of customs strategy.
“They cannot just sit with customer service or operations. Returns are now connected to compliance, customs, finance, fraud prevention, recycling, repair, resale, and warehouse routing. It is a big change for retailers who still think of returns as just a label and a refund.”
Forwarders and Mr Gerrie agreed that one option would be for retailers to impose a minimum order value of €150 to avoid such charges, with suggestions that another work around would be to consider where it made best sense to fulfil orders from.
This could mean either fulfilling orders to the EU from Europe itself or alternatively process the returns via EU returns hub before consolidating returned goods to be moved en masse or else to resell returned stock locally rather than bringing everything back to points of origin.
Given that the US scrapped its de minimis exemption last year, some forwarders have already gained experience, with FB Canada Express CEO Nicholas Timmins already noting a shift from the “parcel-first” mindset to one more structured around a customs and gateway model.
“As de minimis rules tighten in the US and Europe, there is an advantage in shifting toward forwarders who can manage data, duties, documentation, consolidation, and clearance earlier in the process,” he told The Loadstar.
“Some direct-to-consumer parcel traffic that previously moved straight into the US or Europe is being reconsidered, consolidated, or routed through gateways where customs expertise and final-mile injection are stronger.”
Importantly, there is recognition that there is no single answer, and the response to changes in both Europe and North America will need to be tailored to the needs of the retailer, depending on product value, return rate, margin, country mix, duty exposure and customer expectations, he added.
There is an expectation that volumes will obviously take a hit, with DHL Express in Europe CEO Mike Parra said it was “part and parcel of global trade” to see regulatory changes prompt a drop-off, at least temporarily.
“One need only look at the US tariffs. After they took effect, volumes from Asia dropped by some 28% to 30%, but the volume has started to come back slowly following the first easing of the tariffs – although the complete volume is not back,” Mr Parra told The Loadstar.
“EU de minimis changes will lead to reduced volume for final-mile delivery. We’re used to volatility, we’ve handled it since 1969, but we’ve been working on it for six months, coaching staff and customers to work through this, while still keeping a viable business.”
Mr Gerrie believes retailers that spend time now properly modelling the best way of trading in the post-de minimis landscape will be far better positioned than those that wait for “the rules to bite”.
Like Mr Parra, he expects volumes to drop, “not because consumers suddenly stop wanting the products”, but because some low-value cross-border sales will not make commercial sense once duty, shipping, returns, processing and unrecovered costs are added together.
“So the biggest implication is not paperwork but customs; returns and supply chain data now need to be managed as one connected process. Retailers that do that well will protect margin, those that don’t will face higher costs, slower recovery, and weaker EU sales profitability.”
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