Cross-Border E-Commerce Sellers to Russia Face More Barriers

cross-border e-commerce selling to russiaReports in the Russian press indicate that the Association of Express Carriers of Russia (АСЭП) which includes major international carriers such as DHL, FedEx, TNT and UPS, is preparing a letter to the Russian government announcing termination of cross-border courier services to Russian individuals.

Even before finalizing the letter, FedEx and DHL have announced a temporary cessation of all express shipments to Russian individuals, which will take effect by the end of January 2014. On the positive (!) side, Russian Post / EMS service is continuing with no immediate changes.

These actions are partially in reaction to the impending change in laws regarding cross-border e-commerce sales, which will see the duty-free import exemption drop from EUR1000 to EUR150.

However, they are also a reaction to changes in Russian customs clearance procedures imposed since the beginning of 2014 which have crippled these international couriers’ efficiency. For every express parcel clearing through Sheremetyevo and Vnukovo airports in Moscow, Russian customers must now furnish a copy of their passport with registration, a screenshot of the order details from the online store, a photo of the item(s) ordered, an original bank statement indicating the online store as the payee, an original customs declaration, and a copy of their credit card. In addition, an explanation is required if the delivery address does not match the recipient’s registered address specified in their passport. 

While not new, these extensive documentation requirements were imposed only selectively in the past, in cases where the customs officer suspected that an individual parcel was improperly valued. From personal experience, they had an impact on about 5% of the parcels passing through the clearance process. And even now, given that the new procedures are in place in only two customs clearance points in Russia, the vast majority of the value and volume of overseas e-commerce purchases will remain unaffected.

The АСЭП letter was leaked in draft form so, while not finalized, is an indication of the serious consequences of the upcoming rule changes. It remains to be seen whether the carriers will actually follow through with this threat. 

Russia has surged to the #5 international market for US-based e-commerce companies according to BorderFree, and the #1 emerging market. It would be quite a blow to the revenues and growth of the carriers as well as to their largest customers, and would certainly boost “alternative” channels which are currently well established but not used by the largest and most prominent e-commerce sellers. It will also boost the competitiveness of local Russian specialists such as SPSR and Pony Express, who can more readily adapt their processes to the Russian environment.

Another important point is that the e-commerce giant eBay has made a substantial investment in its Russian operations, and this policy move by the Russian government will have a severely negative impact on its business prospects, given that its customer base consists primarily of small and mid-sized foreign-based merchants. While such companies would typically use the US Postal Service for shipments to other countries, the lack of reliability of the Russian Post has meant that they tend to use DHL or FedEx for shipments to Russia. eBay must certainly be lobbying for some modifications to the proposals.

eBay has been a pioneer amongst foreign e-commerce companies in terms of investing in Russia. Other major e-commerce players such as ASOS, ShopBop and Taobao have chosen to service Russian customers from abroad, although they have been gradually localizing their marketing such as translating their sites into Russian, providing customer support in Russian, and establishing Russia-specific social media groups.

Additional pressure will be exerted by Russian consumers, who are understandably perturbed by the imposition of these cumbersome procedures which will require them to spend several hours to clear their overseas purchases, and pay customs duties as high as 30% of the purchase price.

There is even a public protest planned for 8 February in Bolotnaya Square, Moscow, the site of some of the largest political protests which occurred in the wake of the disputed federal elections of 2011. It will be intriguing to see the comparative size of the crowds mobilized by this issue vis-a-vis election fraud.

From the government’s point of view, the higher EUR1000 exemption has meant a loss of tax revenue and has been especially visible given the recent surge in cross-border purchases. Russians shop in foreign e-commerce stores not only because of price differences (which are largely erased by higher shipping fees), but primarily to access a much wider variety of goods. Shutting down cross-border purchases will not lead to increased revenues to the Russian treasury. Facilitating cross-border transfers and collecting duties more efficiently would seem to be the more logical direction.

The Russian government is due to make a final decision on the matter by 11 February 2014.

 

About Leighton Peter Prabhu

I am a partner in Interstice Consulting LLP and head of the Russian office. My practice focuses on e-commerce business and marketing consulting, especially for foreign e-commerce brands entering the Russian market. I also serve as a consultant to some of the largest international portfolio investors in Russian equities (both public and private). You can find out more about my background and business interests on LinkedIn. You can also connect with me on Twitter and on Google+.

Follow

Get every new post on this blog delivered to your Inbox.

Join other followers: