How do I get products to my customers? Delivery and fulfillment providers.
Any ecommerce business needs to manage the shipment of products to its customers. Many choose to engage a third party fulfillment services provider, a third party that performs outsourced storage, order packing, shipment, invoicing, and order tracking services. Fulfillment houses may provide a number of additional services, including warehousing, accounting and coupon redemption management.
Rather than keep all its products in stock, a retailer may use dropshipping: passing order and shipment details to a third party (a wholesaler), who then dispatches the goods to the customer directly. The retailer makes a profit on the difference between the wholesale and retail price. Many online sellers might maintain now actual inventory of product but only provide a catalogue or Internet presence. For example, sellers participating in auction sites often will bid an item as new and ship the item directly from the wholesaler to the highest bidder. The seller profits from the difference between the winning bid and the wholesale price, minus any selling fees from the auction service.
Dropshipping presents some risk. While it is true that the profits can be immense, the seller effectively has to rely on the goodwill and professionalism of the dropshipper (which is, more often than not, a company that the a seller knows only through the Internet). Ultimately, an online seller should always keep in mind that if there are problems getting the product to the buyer (for instance, the dropshipper supplying a faulty or incorrect product), the seller will be responsible for the problem and the seller’s reputation is at risk. The buyer is concerned only with receiving the product purchased, not whether the seller used a third party for shipment. For that reason, dealing with unverified dropshippers is highly dangerous and therefore not recommended.
Another complication involved in using dropshippers lies in the fact that reliable dropshippers may already be affiliated with many competing sellers. Therefore, someone just looking to get involved in selling dropshipped products is likely to discover that there are already thousands of people out there, selling the same product and seeking to capitalise on below-retail prices offered by the dropshipper. What this means for everyone else involved is that the competition will drive the eBay price of the product down, thus reducing the profit margins that one would hope to gain by using a dropshipper in the first place.
Dropshipping problems can be limited by dealing with pre qualified suppliers and using only high quality resources which somewhat limit access to the latest dropship offers to professional auctioneers and resellers. Examples of resources listing information about dropshipping services in the uk drop ship and dropshippers directory and, for the US., at www.worldwidebrands.com.
Generally, when choosing a fulfillment house, the ecommerce business should consider the following factors:
- Warehousing capacity: can the provider support the expected volume of the retailer’s sales?
- Flexibility: can the fulfillment house efficiently support varied levels of orders, can it support growth? Are there minimum or maximum order levels?
- Location: is the fulfillment provider sufficiently close to the seller’s customers?
- Insurance: is the provider insured against destruction of inventory due to theft, fire, flood, accidental damage or other natural disaster?
- History: does the provider have an established track record?
- Partnerships: With which carriers does the provider handle shipment? Many fulfillment companies allow the retailer to choose among several national parcel carriers (UPS, FedEx, etc.,) for shipment. Some many limit options.
- Contract length: Does the fulfillment company require a long term contract?
- Service guarantee: Does the provider guaranty delivery? Some companies provide a 100% accuracy packaging guarantee and a 100% shipment guarantee within 24 hours.
- Error record: How does the provider deal with errors? For example, a retailer might determine to choose only a provider reporting accuracy rates of at least 99.5%.
- Web access: How does the provider allow the retailer to transmit and check order processing information? Many offer web-based systems that process orders and allow for order monitoring in real time. Some may help the retailer with systems integration matters. The retailer may need to acquire new hardware or may be able to integrate a provider’s system within its existing IT framework.
- Security: How does the provider address security concerns? The provider should have backup systems in place along with other security measures.
- Pricing: How are services charged? Some providers charge monthly fees for warehouse space and management and/or software services, as well as shipment-based transaction fees.
What legal requirements apply to delivery and fulfillment of goods & services sold online?
The Mail or Telephone Order Merchandise Rule (commonly called the “Mail Order Rule”) is a Federal Trade Commission consumer protection statute. Retailers that accept orders from U.S. customers by mail, telephone or online are required to ship each order at the time stated in their ad or on their Website. Internet sales, as well faxed orders, are included in the definition of telephone, which is defined as “any direct or indirect use of the telephone to order merchandise regardless of whether the telephone is activated by ... machines.” If these obligations cannot be met, the company must provide the customer with a timely notice and option to either agree to a delay or cancel the order and get their money back.
The Mail Order Rule applies to most things a consumer orders by mail, telephone, fax, or on the Internet. The rule excludes “orders of seeds and growing plants,” collect-on-delivery-orders, and subscription deliveries after the first delivery. Goods ordered through book and CD clubs, called prenotification negative option plans, are not covered (these are governed by a different Federal Trade Commission statute). A guideline to Mail Order Rule requirements is available on the FTC website at: www.ftc.gov/bcp/conline/pubs/buspubs/mailorder.htm.
When am I required to ship items purchased from my site?
Internet businesses selling goods covered by the Mail Order Rule are required to ship the goods within the time stated on their website, or, if no time is stated, within 30 days. Where the seller provides a time within which he will ship, but that shipping date is not clearly and conspicuously stated, the seller is deemed to have provided no shipment representation and must ship within 30 days. The internet seller must have a “reasonable basis to expect that it will be able to ship any ordered merchandise to the buyer” within this time. Thereafter, if anything changes and the seller can’t ship within the time promised (or within 30 days if no time is guaranteed), then the seller must ask for the customer’s consent to a delay in shipping. Where the customer doesn’t agree to a later shipping date, the seller is required to cancel the order and return all money that was paid, including any money paid for shipping and handling.
The clock starts as soon as sellers receive a properly completed order, which is received when the buyer tenders full or partial payment in the proper amount in the form of cash, check, money order, or authorization from the buyer to charge an existing account, and the seller has all information needed to process and ship the order. As soon as both of these events occur, the clock on the seller’s obligation to ship begins to run. For instance, where a covered good is ordered on the internet and a buyer provides shipping information and a credit card number for the purchase through the seller’s online form, the seller’s duty to ship begins immediately—the buyer has given authorization to charge his credit account and the seller has all information needed to ship the item. If the seller subsequently learns the buyer doesn’t have enough credit on the charge account provided, the shipment clock stops.
Anytime a seller makes any representation to a buyer regarding shipping, he must have a reasonable basis for doing so. A reasonable basis means that the merchant has, at the time of making the representation, such information as would under the circumstances satisfy a reasonable and prudent businessperson, acting in good faith, that the representation is true. This depends on: whether demand for each advertised item was reasonably anticipated; whether the inventory on hand or the sources of supply were sufficient to meet the anticipated demand for each advertised item; whether the seller had an adequate fulfillment system, especially during busy sales seasons; and whether the seller kept records of each individual transaction to ensure that items were shipped within the applicable time.
The “reasonable basis” requirement applies to any express or implied shipment representations, whether made in the initial offer of the item, or included in a delay notice provided to the customer after the seller learns that he cannot ship within the time required. The seller must also have a reasonable basis for telling the buyer, in a delay notice that he does not know when he will be able to ship the merchandise.
What if I cannot ship on time?
When a seller learns that he will not be able to ship within the time required (either the time clearly and conspicuously stated in the initial advertisement or 30 days), the seller must give the buyer the option of consenting to a shipping delay or canceling the order and getting a full refund. This delay option notice must be made “within a reasonable time after the seller first becomes aware” that he can’t ship on time, but before the promised shipping date passes. Where a seller determines that he will never be able to ship the ordered item, he must cancel the order and make a full refund.
In seeking the buyer’s consent with a delay option notice, the seller can use whatever means he likes—telephone, fax, mail, e-mail—as long as the customer gets such notice before the promised shipping date occurs. According to the Federal Trade Commission, the “customer must have sufficient advance notification to make a meaningful decision to consent to the delay or cancel the order.” In the event the delay notice is not timely provided, the seller must cancel the order and promptly refund the buyer’s money.
In addition to getting the notice to the buyer, adequate means to consent or cancel must also be provided to the buyer at the seller’s expense. This could be accomplished by a postage prepaid reply card, a toll-free telephone number, or a link in a delay option notice e-mail which sends the buyer to a site giving the option online. Notice to this effect posted on the seller’s website is likely insufficient, however.
first shipping delay
The first time the seller learns that the promised shipping date cannot be met, he must provide the buyer with a delay option notice which informs the buyer of a definite revised shipping date—if the seller has a reasonable basis for such representation—and of the ability to cancel the order and get a full refund if the buyer doesn’t want to wait for shipment. If the seller cannot provide the customer with a definite revised shipping date, or, if at the same time or after the seller provides a definite revised shipping date he solicits the buyer’s consent to an indefinite delay, the seller must advise the buyer of the reason for the delay, as well as alert the buyer that consent to such indefinite delay nonetheless allows the buyer to cancel the order anytime before the order is shipped. Thus, the seller is only required to explain the reason for the delay if he provides an indefinite revised shipment date (i.e., where the seller believes that he will be able to ship at some point, but doesn’t know exactly when), but this “explanation should be detailed enough to permit the customer to judge what the possible length of the delay might be.”
Definite revised shipping date of 30 days or less
Where the seller revises the shipping date to within 30 days or less from the initially promised shipping date—the time clearly and conspicuously stated by the seller in the advertisement or 30 days if no time was stated—the seller must also tell the buyer that if before the expiration of the revised shipping date and before the item is shipped the seller does not receive notification from the buyer rejecting the delay and canceling the order, the buyer will be deemed to have consented to shipment by the revised shipping date. For example, if the seller promised that the item would be shipped within 14 days of the order, but the seller then sends the customer notice that it won’t be able to ship until 30 days after the order, the buyer will be treated as consenting to such delay if the seller does not get a response from the buyer canceling the order before the item is shipped or the revised shipping date passes.
Revised shipping date of more than 30 days or indefinite revised shipping date
Where the seller provides a revised shipping date more than 30 days after the initially promised shipping date—the time clearly and conspicuously stated by the seller in the advertisement or 30 days if no time was stated—or the seller can’t provide a definite revised shipping date, the seller must inform the buyer that the order will automatically be deemed cancelled unless: (1) the seller ships the item within 30 days of the initially promised shipping date and the buyer has not cancelled the order before shipment or (2) the buyer responds to the seller specifically consenting to the shipping delay.
subsequent shipping delay(s)
When the seller learns that he cannot meet the revised shipping date, he must again seek the customer’s consent to a further delay. This renewed delay option must contain the same information as the additional delay option notice, however, here, the buyer must explicitly consent to such delay—the seller cannot treat the buyer’s silence as consent. The seller can no longer consider the lack of response from the customer as consent to the additional shipping delay. In the case where the customer has explicitly agreed to an indefinite revised shipment date upon an appropriate and timely delay option notice from the seller, no additional delay notices are required to be sent by the seller.
Can I cancel a buyer’s order?
A seller is permitted to cancel a buyer’s order at any time after the seller discovers he will be unable to ship within the time initially promised or within any delay period consented to by the buyer. Instead of seeking the customer’s consent to a delay, the seller can cancel the order and send a refund within the time he would have sent any required delay notice.
When am I required to make a refund?
The seller is required to cancel a buyer’s order and provide a prompt refund in the following circumstances: (1) the buyer sends and the seller receives notice canceling the order before shipment; (2) the seller provides the customer with a definite revised shipping date that is 30 days later than the date initially promised, the customer does not respond to the seller’s notice, and the seller has not shipped the item(s) within 30 days of the initial shipping date; (3) the customer consents to a definite delay and the seller has not shipped or obtained the customer’s consent to any additional delay by the shipment time the customer consented to; (4) the seller has not shipped or provided the required delay or renewed option notices on time; or (5) the seller determines that s/he will never be able to ship the merchandise.
When the seller is required to make a refund, the seller is subject to different obligations depending on what method of payment the buyer used. If the buyer paid by cash, check, or money order, the seller is required to send the buyer a refund within seven working days of the date the buyer becomes entitled to a refund. (“Working days” probably means any day that the seller carries on its business.) Where the customer paid by credit, instead of cash, check, or money order, the seller must refund the customer by crediting the customer’s account within one billing cycle after the order is cancelled or, the seller must notify the customer that their credit account will not be charged. The seller who is required to make a refund cannot instead give the customer store credit, either through credit towards future purchases, credit vouchers, or scrip. In the event that the seller has shipped some, but not all of the merchandise ordered, the refund is equal to the total amount the customer paid minus the amount that they would have paid for only the items that were shipped. Otherwise, if no items were shipped, the entire amount the customer paid must be returned.
A seller can be sued by the Federal Trade Commission for injunctive relief, monetary civil penalties of up to $1,000 per violation of its shipping and delivery rules. The FTC has 3 years to bring claims against sellers on behalf of aggrieved consumers, but the statute of limitations on actions to enforce the Mail Order Rule is five years for civil penalties. (A seller should keep records of its transactions for at least 5 years – See RECORDS RETENTION, below.) State statutes regarding unfair trade practices may also encompass violations of the FTC Mail Order Rule, and have statutes of limitations for individual customers or state actions that are longer. The state laws in the state where business is to be carried out should be consulted.
The Federal Trade Commission is authorized to issue a complaint against a person when the FTC has reason to believe that there is a violation of the Federal Trade Commission Act and if it appears to the FTC that the proceeding would be in the public interest. After it files a complaint, holds a hearing, and makes findings that the conduct of an FTC respondent violates the Federal Trade Commission Act, the Commission is authorized to issue and serve on the respondent “an order requiring such person, partnership, or corporation to cease and desist from using such method of competition or such act or practice.” The FTC then has 5 years from the issuance of the order, to commence a civil action against one who violates the terms of the cease and desist order to which it is subject. When the violation is intentional, a civil penalty of up to $10,000 for each violation can be assessed. In addition to assessing civil penalties, district courts are empowered to grant mandatory injunctions and “such other and further relief” as may be appropriate, including the ordering of restitution.
The FTC may also seek redress in the courts on behalf of persons who have been injured as a result of a dishonest or fraudulent violation of the Mail or Telephone Merchandise Rule. Redress can be sought not only for “consumers,” but for injury to “other persons, partnerships and corporations.” Once the consumer complains about the Rule violation to the FTC, it is up to the Commission’s discretion whether and when to bring an action. The Commission may institute a redress proceeding within three years after the conduct occurred directly in court, the only prerequisite for relief being that it show that defendant violated the Mail Order Rule. In this type of action, the court may grant such relief as it finds necessary to redress injury to consumers or other persons, partnership, and corporations resulting from the rule violation, as the case may be. It may include rescission or reformation of contracts, the refund of money or the return of property, and the payment of damages, excluding exemplary and punitive damages.
Ecommerce businesses should adopt records retention policies that take note of the rules and regulations of the FTC and other authorities. See the discussion under Records Retention.