Legal aspects of dropshipping: contractual peculiarities and most relevant legal questions

Anyone who deals with e-commerce will sooner or later always come across the topic of dropshipping. In my contribution I would like to highlight the general process of dropshipping and the main legal questions.

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The dropshipping business model consists of three main players: the customer (orderer), the sender (dropshipper), for example a manufacturer or a wholesaler, and an online retailer (store operator). The customer orders a product via a web store of an online retailer. The latter then forwards the order to the dropshipper, who then ships the goods directly to the customer on behalf of the online retailer (so-called drop shipment).

The main advantage of this business model is that the goods do not have to be in a physical warehouse of the store operator at any time. This means that the amount of capital tied up and the start-up capital required for start-ups is much lower than for a classic retail approach, as no goods have to be purchased in advance. This directly results in further advantages, such as the relatively “low-risk” expansion of the product range, as the danger of “shopworn goods” can be excluded. In principle, dropshipping can be operated from anywhere in the world.

A major disadvantage of dropshipping is that the online retailer has no influence on the logistical processing of the order. This results in a loss of control over shipping speed, tracking of goods and quality of packaging. Returns and complaints are not the responsibility of the shipper, but of the store operator, since a sales contract is concluded with the customer. A return by the store operator to the sender may be possible depending on the contractual agreement. Furthermore, it must be noted that the profit margins can be very low, since it is the logistical processing of a service, which the shipper of course gets paid.

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First of all, the most obvious problem is that the store operator is fully liable to the buyer as a contracting party and can only claim compensation for any errors made by the supplier in the internal relationship with the latter. Therefore, risks arise with regard to the form of the framework agreement with the supplier on the one hand and with regard to statutory consumer rights arising from the purchase agreements on the other.

With regard to the framework agreement with the supplier, the problem often arises in practice that the dropshipping partner is located abroad, often even in a non-EU country, which gives cause to the question under which legal system corresponding contracts are concluded and where and under which law claims against the contractual partner are to be enforced in the event of disputes.

A further problem arises with regard to the mandatory right of withdrawal for consumers, which is usually set out in national law, in the case of contracts concluded via e-commerce. In principle, the retailer itself must take back the goods that the customer returns under the statutory right of withdrawal. However, this could pose major logistical problems for the retailer if it does not have sufficient storage capacity itself. If the goods are to be returned to the dropshipper, then the question arises here whether it is at all reasonable for the consumer to send the returned goods to an address other than the direct contractual partner.

At least in terms of data protection law, there don’t seem to be too many difficulties. Within the EU, the following applies: Within the scope of the General Data Protection Regulation (GDPR), the transfer of buyer data by the dropshipping merchant to the supplier is generally justified via Art. 6 (1) lit. b GDPR.

Lastly, of course, the seller should also observe the product labeling requirements and similar regulations of the destination country. These may not be observed by the dropshipper. In addition, the seller must generally also comply with obligations under the Packaging Law and the Product Safety Law.

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Ultimately, this makes it clear that in certain constellations, dropshipping can – from a legal point of view – become very complex and leave merchants with legal obligations that cast doubt on the economic viability of the model. Nevertheless, dropshipping will undoubtedly continue to play a major role in sales practice.

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