A distributor is an independently owned business that is primarily involved in wholesaling and takes title to the goods that it's distributing. A distributor is a middleman who handles consumer or business goods that may be manufactured or not manufactured (such as agricultural products), imported or exported, and then sold. The figure illustrates the distributor's relationship to the seller and buyer.
Distributors typically purchase goods on their own account and resell them at a higher price, accepting the risks and the rights that come with ownership of the goods. For example, ABC Importing in New York imports women's sweaters from XYZ International in Japan. If ABC Importing is acting as a distributor, it purchases the goods from XYZ in Japan and arranges to have the goods transported to New York and cleared through Customs. After the goods are cleared, ABC stores the goods in its warehouse and makes arrangements to sell and deliver them to its customers, including Big-Name Department Store.
A distributor
Is independently owned
Takes title to the goods it's distributing (ownership passes from the seller to the buyer upon purchase)
Is often classified by product line (such as medical, hardware, or electronics products)
In the import/export business, there are two main types of distributors:
Full-service distributors: A full-service distributor provides the following services to its customers and suppliers:
Buying: The distributor acts as a purchasing intermediary for its customers.
Creating assortments: The distributor purchases goods from a variety of suppliers and maintains an inventory that meets the needs of its customers.
Breaking bulk: The distributor purchases in large quantities and resells to its customers in smaller quantities.
Selling: The distributor provides a sales force to its suppliers.
Storing: The distributor serves in a warehousing capacity for its customers, delivering the goods to its customers at the customers' request.
Transporting: The distributor arranges for delivery of goods to its customers.
Financing: The distributor provides credit terms to its customers.
Drop-shipping distributors: A drop shipper is a distributor who sells merchandise for delivery directly from the supplier to the customer and does not physically handle the product. The distributor does take title to the goods before delivery to its customer, however.
If you're an importer and you've received a significant order from one of your customers, shipping the goods to the client directly from the overseas supplier may be more efficient because of the size of the order. In this case, you're acting as a drop shipper. For example, ABC Importing in New York receives an order for 300 dozen sweaters from its customer Big-Name Department Store. ABC Importing purchases the sweaters from XYZ International in Japan. The 300 dozen sweaters will be enough product to fill a complete 20-foot shipping container. When ABC places the order, it provides shipping instructions to XYZ International, telling XYZ that when the goods are ready for shipment, they should be placed into the container, invoiced to ABC Importing, and shipped directly to Big-Name Department Store.
If you're concerned about the possibility of future direct contact between the supplier and customer, you can instruct the supplier to have the goods packed in neutral shipping containers, have the complete shipment sent to a shipping agent (a Customs broker), and give the shipping agent the specific delivery instructions.
Both situations offer pros and cons. When you're operating as a full-service distributor, you have a greater level of control. On the downside, you have a greater level of risk and need for working capital because of the significant additional expenses.