Digital, Commerce & Creative 101: Drop the shipping, but not the ball! Five key watchouts for sellers who drop-ship!

Drop-shippers  do not store their own inventory, but instead engage third-party suppliers to fulfil customer orders: typically, in a drop-shipping model, customers will place an order with the seller and the seller will notify the supplier of the order. The supplier is then responsible for sourcing, packaging and sending the contents of the order to the customer. 

While there are drawbacks to the lack of visibility that the seller may have over quality control or shipping processes, customers often benefit from a wider range of products and sellers can enjoy reduced overheads due to the lack of a need for factory or warehouse space and other expenses associated with fulfilment. However, there are legal considerations. 

Here, we set out five key watchouts for drop-shippers (there are more of course!).  By taking note, sellers adopting the drop-shipping model can navigate the complexities of consumer laws and continue to build trust with their customers. 

1. Quality concerns

Drop-shipppers are usually aware that the lack of visibility over the end-products that reach their customers carries some risk. On the face of it, the risk may seem mostly reputational: it is the disgruntled customer’s loyalty to the seller that will be impacted by the customer’s disappointment, not their relationship with the supplier. But where a seller’s drop-shipper is located overseas, the concerns run deeper. Product conformity standards differ between countries, as do requirements for product warnings and instructions, and it is down to the seller to ensure the products it is providing to its customers comply with these standards. 

This risk can generally be mitigated by choosing a reputable supplier who is either local to the seller or who operates in a country with compatible product safety regulations. Otherwise, sellers should consider including strong contractual wording to ensure the supplier’s compliance with the seller’s local laws. 

2. Cancellation rights

The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (Regulations) provide a framework to protect consumers and ensure transparency in respect of UK e-commerce businesses – one which is more difficult to comply with for businesses that use a drop-shipping model.

Under the Regulations, consumers have the right for any reason to cancel an online order for goods within 14 days of receipt – even where the order is fulfilled by a third-party supplier. This period can be extended if the business fails to inform the consumer of their right to cancel. Drop-shippers may face additional challenges in communicating cancellation rights effectively, due to the need for an additional line of communication with their suppliers, who may have different policies and practices. It is important for sellers to be aware that the use of a third-party supplier does not negate this compliance requirement. 

3. After sales-support and complaints handling

All e-commerce sellers must provide information to customers about after-sales support (where applicable) and complaints handling procedures. This process can be complicated by the drop-shipping model, where sellers need to coordinate with suppliers to field queries and complaints about delivery delays or defective products. Sellers should ensure that they are responsive to customer enquiries and complaints regardless of whether they are raised directly with the seller or through the supplier, and they should therefore establish channels of communication with suppliers so that issues can be resolved quickly. 

4. Delivery and risk

The Regulations stipulate that the risk of loss or damage to goods remains with the seller until the consumer takes physical possession of the goods – even where the goods are shipped by a third-party supplier. In a drop-shipping model, where third-party suppliers handle delivery, confusion as to the respective obligations of seller and supplier can be common. It is crucial to establish robust agreements with suppliers to ensure that a seller’s delivery terms are met and that the risk of loss or damage is appropriately managed. Of course, from a consumer law perspective, the seller ultimately remains responsible to the consumer, but having these protections in the contract with the supplier can help to mitigate the seller’s potential exposure. In addition, sellers should ensure that they have in place sufficient insurance to cover any risks that cannot be mitigated contractually. 

5. Additional charges and fees

Consumers cannot be subject to additional fees and charges that they have not expressly agreed to, including any hidden costs or charges imposed by third-party suppliers. The involvement of multiple parties in the transaction may complicate this, especially in the context of a supplierbeing in a different country to the seller, as hidden taxes, duties or shipping cost could apply. Sellers should ensure that any additional charges or costs are clearly understood and explained to the consumer at the start of the consumer journey, well before the consumer is contractually committed.