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What Is Direct Shipping?

By Ray Hawk
Updated May 16, 2024
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Direct shipping, also known as drop shipping, is a method of bypassing the movement of goods from a wholesale or manufacturing location to a retail location. Instead, purchased items are shipped directly from the manufacturer to the customer after being ordered, even though the order is still placed through a standard retail or online outlet. Occasionally, direct shipping bypasses the concept of a retail establishment entirely when a small business is both the manufacturer and seller of goods. Regardless, the main benefit to consumers is that their order arrives sooner and often at a somewhat reduced cost due to reduced shipping and inventory management costs overall.

Variations on direct shipping have been around in countries such as the United States for decades, but are just beginning to emerge as a part of supply chain management in nations like China. Where retailers are still involved in the process of direct shipping, the greatest advantage it offers is that there is no need to store inventory in large quantities, and often just samples are put on display. This makes for more efficient use of store space and reduces the costs of liability insurance.

The advent of online sales has also made direct shipping a common feature of many auction sites. Several categories of successful, home-based sellers use such sites to resell used or new merchandise including, popular products like books and consumer electronics. The retail outlet is effectively the company's online listing, and, when a product is ordered, it is shipped directly from the seller to the buyer.

The convenience of drop shipping attracts many would-be entrepreneurs who are interested in setting up a small business for minimal effort. It also leads to many fraudulent practices where online businesses represent themselves as direct shipping manufacturers when they are, in fact, retailers trying to sell their products to other retailers. Experts in drop shipping warn that finding legitimate drop shipping companies isn't easy, and that standard Internet searches using terms such as wholesaler and drop shipper will pull up mostly fraudulent offers.

The best approach to finding firms who will ship direct is to contact regional manufacturer organizations that specialize in the product industry of interest. Those companies that offer real opportunities will often require the signing of an Authorized Dealer Agreement (ADA) by the seller, which is a legal document between the manufacturer and the seller governing availability of product, pricing, and more. Sellers in the United States will usually be required to have a tax ID number as well before a drop shipping company will do business with them.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Discussion Comments

By anon318550 — On Feb 07, 2013

I am in Australia, looking to start my online dropship business for products manufactured in the USA. Thank you for this lovely article. I have a question. Do I first start it with 10-15 products, or do you recommend I start with all 80-100 products online in my portal store and then reduce the ones that don't sell well or don't sell at all?

Another question: do I need to state in terms and conditions that its a dropship online store or is there no need to mention it? --


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