Is drop shipping permissible?

Q: I’m looking to start an online store insha-Allah. There is one model which is pretty common now, which you would offer a product to the customer but you haven’t purchased it yet from the manufacturer. Once your customer places an order for your product you would then purchase it from the manufacturer and get them to send it to the customer. Commonly known as drop shipping. Is this permissible, as you don’t take possession of the product? I have heard mixed opinions on this: some say it is not allowed; others say it is allowed if it is done as a SALAM and with certain conditions. What are these conditions if allowed? What are your thoughts on this issue? Jzk for your time and effort.

A: الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب

12th Shaʿbān 1438 | 9th May April 2017

There are two principal issues of concern in the current practice of drop shipping.  The first relates to the sale of what one does not own and the second relates to the sale of what is not in one’s possession.

As for the first issue, this may be overcome by using a salam contract between the online retailer and the customer [as identified in the question] for which the basic conditions are as follows:

  • The contract is definite without an option to rescind.
  • The product is properly specified.
  • The product is a fungible.
  • The contract is not for a specific item.
  • The product is available in the market at the time of contract and, at the very least, at the time of delivery.
  • The delivery of the product is deferred.
  • The price is properly specified.
  • The price is paid up in full at time of contract.
  • The date and place of delivery are known.
  • The product is not replaced with a different product.

However, the online retailer must first take possession of the product acquired from the manufacturer/wholesaler, either in person or by proxy, before the ownership of the retailer is complete.  Whilst a salam contract may be contracted for what is not in one’s possession or ownership or what does not as of yet exist, it does not obviate the need for the online retailer to take possession of the product in order to effect proprietary transfer.[1] Therefore, the question remains as to how the retailer secures possession.  In most cases, the manufacturer/wholesaler will be at a different location from the online retailer and so possession in person is not an option.  This leaves only the option of possession by proxy. In a normal [non-salam] sale, whilst the manufacturer/wholesaler cannot be the proxy in his primary role as the vendor, he can be proxy subordinately under the instruction from the online retailer to deliver the product to the customer.  Thus, under a normal sale, when the manufacturer/wholesaler forwards the product to the customer on behalf of the online retailer, the online retailer will be deemed to have secured possession of the product subordinately.[2]  However, this does not hold true under a salam contract as, in the latter case, the salam contract alone does not effect proprietary transfer of a specific item but rather only confers the right to receive a non-specific item.  Thus, the online retailer cannot appoint the manufacturer/wholesaler an agent to deliver the product to the customer as the specific product is not the property of the online retailer.[3]  This leaves only the shipping company.  However, the shipping company has a contractual relationship with the manufacturer/wholesaler and not with the online retailer.  Thus, it does not appear possible to argue that the shipping company is proxy for the online retailer due to which the possession of the online retailer is realised.  However, if the process is adjusted so that the shipping company has a contractual agreement with the online retailer to receive the product on behalf of the online retailer and then deliver it to the customer, then this can be valid.  The possession of the shipping company will conclude the salam contract after which it will be charged to deliver the product to the customer.

https://www.shopify.co.uk/guides/dropshipping

And Allah knows best.

Mufti Mohammed Zubair Butt

Chair, Al-Qalam Shariah Panel

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