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Shipping container with dropshipping inscription
The global drop shipping market size was estimated at USD 225.99 billion in 2022 with a CAGR of 32% between 2021 to 2026. Image: Novikov Aleksej/Shutterstock

What is drop shipping?

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You thought you had ordered from an Austrian online shop, but then had to wait weeks for delivery from abroad? You probably ordered from a drop shipping website. We explain here the concept of drop shipping, how to recognise such webshops and why, in case of doubt, it is better to buy elsewhere.

The concept

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.

Pictogram shows cargo ship on waves in white lines on dark red circular background

Goods come from outside Europe

The problem

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.

Pictogram on round dark red background shows package, above magnifying glass magnifies Chinese characters

Drop shipping has drawbacks

Summary of disadvantages

  • 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!

Pictogram on round dark red background shows person in pensive pose and with thought bubble

Disadvantages outweigh

  • 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.

Pictogram on round dark red background shows customs officers opening a container

stuck in customs

How do you recognise drop shipping websites?

The drop shipping method is not mentioned, as this usually discourages customers from ordering. Sometimes online shops mention that they order directly from a supplier, but is this drop shipping or not? Look out for the following:

  • Unclear or long delivery times

Drop shipping suppliers are often based in Asia. Therefore, it often takes weeks or even months until the order arrives. Since online shops have no control over delivery times, they try not to inform at all or only vaguely about delivery times. If it is a page from the Shopify platform, company data would have to be given. Look out for Chinese addresses in the delivery location.

  • Address details

Does the website list a private address as the company's registered office? Then it is probably a drop shipping business. Check the address with Google Maps. Is it in an industrial zone or a residential street? Is an address in HongKong, Shanghai or Shenzen listed for return parcels? Are these details or a breakdown of return shipping costs difficult to find?

  • No own product images

Online shops that work with drop shipping often do not use their own product images but simply make use of reseller platforms or manufacturers. Compare the product image with those on established marketplaces (e.g. Amazon, AliExpress, Alibaba or Wish) and check whether you find the same image there.

  • Language mistakes

Often the texts are typewritten and poorly translated from English. Look out for strange sentence structures and language errors. However, this detection feature helps less and less as drop shipping offers from German-speaking countries increase.

  • An automatic redirection from an .at or .de domain to .com is also an indication.
  • Fake reviews

The page only shows positive customer reviews. If the 5-star ratings come from a rating platform, you should search Trust Pilot for the name of this platform to check whether it is dubious (e.g. "loox").

Ordered via Drop Shipping, what to do?

When you place an order with an online shop from the EU, whether drop shipping or not, you enter into a contract with them. With drop shipping, the contract partner is the online shop, not the shipping company. The web shop is responsible for delivering a flawless product and must comply with the legal return and warranty rules. These are the most important rules:

  • If you get doubts and want to cancel the delivery of goods that has not yet been delivered, send the sample letter "before delivery" to the dropshippers.
  • Have you received a defective product? Or has the product broken within the warranty or guarantee period? Then the online shop must offer a solution and not hide behind the supplier.
  • You can return the order within the 14-day cooling-off period if you have declared your withdrawal from the purchase contract beforehand. You do not have to give a reason and the drop shipping company must refund you the purchase price.
  • The online shop is not obliged to provide you with a domestic return address. He can give the address of the supplier for parcel returns. Please note: The online shop must have mentioned this in the sale. The trader must also clearly state the costs for returning the order in advance. Such costs and fees can be quite substantial!
  • If you have not been correctly informed by the drop shipping company about the return modalities and are expected to pay for the expensive return postage to a non-European country, your first step should be to declare your withdrawal from the purchase. Use the following sample letter "after delivery". In addition, use the sample letter "Dropshipping" in which you refuse to pay the expensive postage. You can send both letters together to the drop shipping company.
Smartphone Display zeigt Teil der Shopify Seite mit dem Slogan "Anyone, anywhere can start a business"
If "anyone can start a business at any time" this does not promote quality services.... Image: Rafapress / Shutterstock

The trend

Drop shipping took off virally in 2019, multiplied in trade volume since then and is a global phenomenon. The fast-growing Canadian company Shopify played a special role in this boom. For around €30, it offers access to its own platform, where it provides drop shipping merchants with its billing and logistics software. The operation of such a webshop was thus made very easy for newcomers and also massively advertised.

It was advertised, especially on social media, that drop shipping could be used to get rich quickly with little effort and no prior knowledge. Many self-proclaimed coaches and marketing gurus jumped on the bandwagon, who in turn fleeced the budding drop shippers, who in turn applied half-baked trading concepts and caused disgruntlement among many end customers. As a result, there are millions of drop shipping web shops, mostly run by individuals who want to create a second income with a few hours of work per week. These shops give no indication that they are drop shipping and direct deliveries, e.g. from the Far East. On the contrary, the traders try to make the site look local, pay for a European domain extension such as .at or .de and try to hide the unfavourable delivery conditions as much as possible. As this led to a myriad of complaints, the EU Commission intervened via CPC authorities and reached an agreement with Shopify in 2021. Since then, webshops on Shopify have had to provide more information such as company and contact details.

Screenshot eines Facebook-Werbeposts von Solejungle mit Nike-Turnschuhen und Kürbis als Halloween-Motiv.
Der Webshop hat kürzlich seinen Namen von "SoleJungle" in "TheJungleSole" geändert. .... Image: Screenshot von Facebook am 21-2-2023

ECC case studies

Susanne sees an advertisement on Facebook from the website JungleSole. She wants to order certain Nike brand sneakers there, at first glance from a Spanish retailer. Susanne hadn't noticed that there is no imprint and that the shoes look slightly different in the pictures than in the product pictures from Nike itself. Weeks after ordering, Susanne discovers that the sneakers got stuck at customs and she has to pay back taxes. If she had known that the goods were ordered from China, she would not have ordered from this website.

Screenshot shows only 5 star customer reviews of product Dog bed
Not a single one of the alleged 1688 reviews awarded less than 5 stars!? Image: Screenshot taken on 23-02-2023 from Hundeliebling.at

Nina had come across the website Hundeliebling.at through intrusive social media advertising. She ordered a dog bed from the webshop. She did not check the cancellation policy on the website to see that returns to Ninbo in China would be at her own expense. After all, "one of the largest dog shops in the German-speaking world" claims to have been founded in Münster, Germany, in 2020 and the contact email also ends with an .at extension. The fact that Hundeliebling.at automatically redirects to Hundeliebling.com is only noticeable if you pay attention to it. The same applies to the fact that all(!) products were exclusively(!) rated with a full 5 stars. Delivery from China took 3 weeks, delayed due to "high demand" they said. The product turned out to be smaller than expected and emitted an intense chemical smell. Nina and her dog are not fond of the bed, she would not order anything from this shop again. After ordering, she was asked (by the review platform Loox, which is considered to be unserious) to give a review for the purchase. Since placing the order, she has received annoying advertising by email.


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