In the weeks before Christmas, California regulators will have to issue a ruling on Uber’s application for a license to legally operate a limousine service. With this vote, the state is joining 36 other states that have legalized transportation network companies (or TNCs, as the preferred acronym is now written). It’s a move that’s long overdue.

The DtC system is one that requires a fairly unique understanding of how fulfillment houses operate. If you haven’t heard of the term, a fulfillment house is a company which takes orders from various online retailers, and processes and ships the orders, usually via a third-party logistics service. In other words, a fulfillment house helps a retailer manage their inventory more efficiently by taking orders from the retailer, and shipping products to the customers.

Fulfillment houses are one of the main reasons why wines from the D.C. region cannot be shipped directly from local wineries to consumers. For those who don’t know, a fulfillment house (also known as a warehousing company) is a consolidator of wines. It stores wines, makes them available to retailers and wholesalers, and then ships the products to consumers. As one of the largest warehousing companies in the United States, Washington DC Tax Commission has a lot of sway over the direction of D.C. wines.

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Alex Koral contributed to this article. 

Expert EditorialAlcohol shipping compliance for direct-to-consumer (DtC) is a complicated web of moving components, many of which are concealed from view by design. Fulfillment houses, as part of this network, are a critical component of the process that have traditionally worked in the background but have lately been a source of controversy. 

DtC shipping saw record growth in 2020, thanks to Americans’ heightened demand for remote sales amid the COVID-19 shutdown. DtC wine exports, for example, increased by 27% year over year, the biggest rise ever. However, state authorities have taken notice of the rise in sales, with a particular emphasis on fulfillment companies and their involvement in the alcohol shipping process. 

Despite the fact that fulfillment houses only work under the supervision of a licensed shipper, they often appear to authorities as unlicensed businesses in the DtC market, raising genuine concerns about minors being sold or governments losing tax income. Fulfillment houses offer a perfect target for extra, but needless, regulation for lawmakers who may not completely grasp the shipping process but are fueled by these concerns. We’ve seen headlines like “Tennessee Legislators Aim to Limit Winery Direct Shipping Sales” and “States Grapple With How to Regulate Fulfillment Houses” this year, for example. The growth in DtC alcohol sales has made fulfillment houses’ position more important to customers, as has increased regulatory activity. 

The Mysteries of Fulfillment Centers 

DtC alcohol transporters often lack the necessary storage space or logistical capabilities to ship to consumers throughout the nation. Fulfillment houses fill in the gaps for their clients, enabling them to concentrate on what they do best: manufacturing, promoting, and selling alcoholic beverages. Beyond the direct-to-consumer market, fulfillment houses often act as in-bond warehouses for wineries to keep their product before delivering it to wholesalers, offering storage and logistical capabilities that winemakers may lack at their permitted facilities. 

When a fulfillment house fills an order on behalf of a producer, the package often includes the return address of the fulfillment center from where the shipment came, rather than the licensed shipper. Regulators may be concerned that the cargo was sent by an unauthorized third party, implying that it was an unlawful shipment. Some authorities may mistakenly believe fulfillment houses are selling wine — marketing to and receiving money directly from customers — which is never the case. 

Restrictive laws based on a lack of knowledge of fulfillment houses’ role in alcohol shipping may stymie fulfillment houses’ operations, harming the alcohol DtC shipping sector and even creating revenue loss at the state and municipal level. 

State Regulations in the Recent Past 

Some legislators targeted fulfillment houses in a year when there were more proposed reforms to alcohol sales and distribution than we’ve seen since Prohibition ended. Consider the following scenario: 

  • On May 13, Alabama became the 47th state to allow winery direct shipment (effective August 1, 2021). DtC licensees in Alabama must only deal with fulfillment houses that have been legally licensed by the Alabama ABC Board for DtC shipping. 
  • On May 26, Kansas Governor Sam Brownback signed a measure into law requiring fulfillment houses to be licensed, maintain records of all shipments for at least three years, and submit monthly transaction reports. 
  • Similar restrictions were established in Tennessee when Gov. Bill Lee signed a bill that compels DtC shippers to only ship themselves or via licensed fulfillment houses beginning January 1, 2022. Fulfillment firms will also be obliged to submit quarterly reports on the shipments they handled as part of these obligations. 

Confusion is dispelled with the use of tracking numbers. 

While DtC shipping regulations vary significantly by state, one piece of data seems to give all states a better method to regulate activities going forward: the package tracking number. When both carriers and DtC shippers are obliged to disclose a cargo’s tracking number, the licensed source of each shipment may be identified, dispelling the myth of illicit shipments from fulfillment houses. 

Shipping tracking numbers are a single data point that all participants in the DtC shipping network have, and authorities may use them to verify that the shipments reported are genuine when comparing records currently needed from carriers and regulated shippers. The tracking number guarantees that a licensed DtC shipper takes responsibility for each package, relieving the fulfillment houses of extra work.

Don’t be afraid of the fulfillment house, but make sure you follow the rules. 

Requiring tracking number reporting would be a small adjustment in the already complex world of alcohol shipping compliance, where wineries, brewers, distilleries, and merchants must follow each state’s direct-to-consumer shipping laws. While it is a legal requirement, compliance may be a significant hardship. As a result, there are a variety of alternatives for dealing with compliance, including employing someone to do it manually, engaging with a compliance consultant, or using software solutions that automate the process. 

DtC shipping reached new heights in 2020, and all indications point to greater competition in online alcohol purchases made directly from wineries, craft brewers, and distilleries. In the ever-changing world of beverage alcohol compliance, now is the time to identify the right partner to assist minimize risk, reduce compliance load, expedite product launch, and allow revenue development. 

Understanding-Fulfillment-Houses-Is-Key-to-Regulating-DtC-ShippingAlex Koral provides an overview of the author. 

Alex Koral works at Sovos ShipCompliant as a Senior Regulatory Counsel. He keeps up with beverage alcohol laws and market changes in order to assist Sovos improve its ShipCompliant solution and educate the industry on compliance concerns. Alex has been with the business since 2015, when he graduated from the University of Colorado Law School with a J.D.

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This article broadly covered the following related topics:

  • vinespring
  • winery dtc software
  • vinespring admin login
  • vinespring 3 login
  • vinsuite pricing
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