What is drop shipping?

The drop shipping business model is growing and there are more and more online shops that work with it. In this process, customer orders are served, but the web shop itself has no storage space or inventory. Instead, customer orders are forwarded directly to online marketplaces, suppliers or wholesalers. Such a third large company then ships the package to the clientele on behalf of the webshop. Nevertheless, the sales contract is with the drop shipping company and not with the manufacturer or shipping company. The webshop that operates drop shipping has less sales risk and saves enormously on storage, shipping and administration costs and thus also manages with far fewer capital reserves. In German, drop shipping is also referred to as series business, direct trade or direct shipping.

The difference between drop shipping and the Marketplace business model (e.g. on Amazon) is who is the seller and who sets the price: In drop shipping, traders are also sellers and set prices, the rest is delegated. Margins between purchase price and final sales price to customers are around 50%. In the Marketplace model, on the other hand, manufacturers act both as consignors and sellers, set the price and handle everything themselves when it comes to customer contact. For the use of the Marketplace platform, on which they can reach millions of interested parties, they pay fees of between 5-20% of the sales revenue.

Since the supply chain is taken out of the hands of drop shipping and since, according to the law, drop shipping traders within the EU are still responsible for complaints, tensions with customers regularly arise. Drop shipping makes it possible to handle large order volumes. However, the small companies usually have no staff for regular customer support and, above all, hardly any influence on the handling of returns.

Even with drop shipping orders, both the 14-day right of return as with "normal" online shopping and the protective provisions of the warranty apply. Too often, however, the implementation of these consumer protection rules is not even possible due to the business model, because the distribution involved is unreachable or unwilling outside Europe.

It is enough to have ordered the wrong size of product or to be dissatisfied with the poor quality of the product and therefore want to return it. Even with such consumer rights basics, customers quickly reach the limits of the drop shipping system.

In case of problems, drop shippers usually ask their customers to return the goods to non-European addresses or they offer a credit note for part of the order amount if the customer refrains from returning the goods. However, very few are satisfied with a partial credit if they keep the disappointing goods. Otherwise, customers have to pay the return costs, e.g. to China, themselves. Since the expensive return postage is usually not in proportion to the value of the goods and the outcome is uncertain, an unfortunate drop shipping order can quickly become a nuisance.

• No product reliability

Products sold in this country from outside the EU must comply with European product requirements. Drop shippers in most cases do not even see and control the products they sell and cannot guarantee good quality. Don't be surprised if fake, unsafe or cheaply made products are delivered.

• Long delivery times

Due to the European façade of the webshop, customers assume fast delivery. Many online marketplaces and suppliers as a source of supply for drop shipping are located abroad, mainly in Asia, and come in large quantities by container ship. This leads to long waiting times. Delivery often takes weeks, sometimes even months.

• Return address outside of Europe

Read the terms and conditions of the contract regarding the return policy and pay attention to the indication where (non-EU country?) you have to return the goods. Here, additional costs often arise due to a return that are higher than the value of the product.

• Difficult or no returns

If you are dissatisfied with the product, it is difficult or impossible to exchange it.  More often, the exchange of goods is generally excluded. This is legal, traders are not forced to take back flawless goods. However, webshops must always accept your withdrawal from the contract within 14 days. You can therefore withdraw from the purchase and demand a refund of the price if you return the goods. Thereupon, instead of refusing the exchange, you could simply reorder the more suitable item. In practice, however, this will not prove successful, as the return is probably not so easy for the reasons described above.

• Not always cheaper

The earnings model of the middlemen is the price margin that is added to the selling price of the first sellers. The price may be higher than if you had ordered directly from marketplaces such as AliExpress, Alibaba or Wish, or even from manufacturers' sites. Many drop shippers simply place their order there. Bargains are possible with drop shipping, but compare prices anyway!

• Difficulties due to customs duties and levies

Time and again, drop shipping shipments are stranded at customs because import fees have not been paid. The customer is then supposed to unload the goods. Orders from third countries outside the EU are subject to import duties for consignments over €150 in value and import VAT must also be paid from the first cent. An online shop is obliged to inform you before you buy that the supplier is based in a third country and what charges and costs may apply. If you are unpleasantly surprised by customs charges at the time of delivery, you can refuse the package and be entitled to a refund of the purchase price. The online shop where you placed the order is responsible for such returns and refunds.