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Delivering Consumer Clarity: Calculating ‘Landed Costs’

Landed costs

Brexit certainly caused chaos for many, with stranded stock, extra costs and delayed deliveries causing stress and dissatisfaction for businesses and consumers alike. On top of these delays due to increased customs clearances and declarations, there were early reports that customers purchasing items online from the EU were facing unexpected fees due to Brexit red tape, with many surprised when couriers were demanding additional charges on their doorsteps. One unfortunate customer had to pay an extra £82 for the £200 coat they had ordered from Europe. 

These unexpected costs were due to the ‘landed cost’ of the imported item not being made visible to the consumer by the retailer at the point of sale. The ‘landed cost’ is the sum of the net cost of the item plus how much it is to send the item from the country of origin, transport it into the country in which it will be sold with any admin fees and then have the local taxes added. This is something which now applies to goods travelling in both directions between the UK and the EU since the UK left the European Union and the end of the Brexit transition period on 31 December 2020. So, with online sales soaring to new highs as almost half of consumers shift to online shopping amid the pandemic, how can retailers stop these unexpected fees from blindsiding customers and potentially stop them from purchasing again. result? 

Why are landed costs an issue?

Depending on the value of the product purchased by the consumer and where it was originally manufactured, shoppers may have to pay additional customs or VAT charges on the item when it reaches the destination country. This can usually seem excessive if the original country’s VAT has not been excluded first at the time of the online purchase. These additional and unexpected charges can then end up being the responsibility of the customer, if not taken care of by the retailer, but all too often the customer has no idea to expect them. In fact, without the right systems in place, the retailer likely has no idea how much the eventual cost of the item might be, with seemingly no choice but to leave the bill on the doorstep of the unknowing customer. Not the best strategy for improving customer satisfaction and loyalty for repeat purchases or gaining a competitive advantage. 

This is causing an issue for retailers because customers will complain that they have not been informed of these extra costs and that they will be liable for them, creating huge customer dissatisfaction and seeing many items returned as a result. Indeed, worrying reports that UK retailers have considered burning clothes stuck in the EU due to Brexit red tape and customs charges means that something needs to change.

When there is an issue with the delivery, especially when it comes to extra costs, customers will look to the retailer. There are reports that more than half of customer complaints to UK retailers are attributed to issues with the post-purchase experience, that is from the moment a customer has ‘clicked’ the buy button through to the item arriving at their front door. Clearly, retailers need to re-evaluate their post-purchase experience, and streamline their customer experience in order to provide a positive buying experience and promote brand loyalty. 

Having full visibility of the total ‘landed costs’ for consumers before they complete an order, giving them the full purchase price – inclusive of duties, local taxes, loading, insurance and freight charges – means that customers will avoid these shock charges and prevent them from subsequently returning items in frustration in order to get their money back. The fact remains, consumers will not make an online purchase without full visibility of the estimated import costs, plus delivery, so retailers need to be prepared and aware of the duties in order to continue to deliver to UK addresses without any concerns.

What can be done?

Business is inevitably changing due to Brexit regulations and controls, but there are strategies that businesses can deploy to mitigate any negative impact. And with consumer behaviour changing rapidly due to the pandemic, the pressure is on. With customers relying heavily on home deliveries during lockdown, consumers now expect more from the brands they are purchasing from. There is a high demand for problem-free, convenient and safe delivery and implementing the right technology means that there won’t be any surprise extra costs.

A global trade data system that provides full visibility can help businesses achieve higher trade compliance rates, reduce duty spend and significantly and more accurately calculate landed costs. Retailers can provide customers with visibility of otherwise hidden costs at the time of purchase, providing the opportunity for competitive differentiation especially with items that consumers can purchase from multiple online retailers. Not only that, but global trade data can also help ecommerce companies better manage cross-border returns, which can be difficult and costly. By disclosing duty and tax rates upfront during check out, international customers can understand the true cost of sale and are less likely to refuse a shipment due to unexpected fees.

Providing a potential customer with the full amount of the item, plus separate shipping costs – even shipping options – can positively add to the overall customer experience as retailers can position themselves as trusted and transparent. This has never been more important than now, with Brexit stifling the free movement of goods and Covid simultaneously increasing consumer demand and expectations.

For further information see Descartes CustomsInfo

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