Is Dropshipping Dead? No More Cheap Shipping from China
Everything you need to know about the United States ending cheap shipping from China and what it means for online sellers.
Dropshipping from China has been one of the most popular ecommerce business models of the past decade.
A big reason for this is it’s been ridiculously cheap to buy and ship goods from China to the rest of the world, including the United States.
But that might be about to change.
The reason? The United States is planning to increase shipping rates for packages arriving from other countries, including China.
That means dropshipping from China to the US is going to become more expensive. The impact of this is uncertain, but it’s likely to make dropshipping a less attractive fulfilment method, especially for sellers with low profit margins already.
The good news is that the changes are likely to be less severe than initially thought when the US government announced it was leaving the Universal Postal Union (UPU).
Now, all of this might sound a bit confusing, so bear with me and I’ll explain how we got to this point and exactly what it means for dropshipping.
BUT FIRST… let’s address the question posed in the headline: Is this the end of dropshipping?
Absolutely not! Dropshipping from China to the US might be over sometime soon.
BUT, that doesn’t mean that dropshipping as a business model is dead.
Far from it. In fact, these changes might open up more opportunities for dropshippers in the United States. More on that below.
Let’s rewind and explain exactly what’s going on and how it’s going to impact on you and your dropshipping business.
- The history of the US postal service and China
- Why the US is ending cheap shipping from China
- What this means for dropshipping businesses
- 5 ways to prepare your dropshipping business
A short history of how we got here: The US, China, and the problems with cheap shipping
So way back in 1874, before ecommerce and dropshipping could even be imagined, the US and 21 other countries formed the Universal Postal Union (UPU).
It’s an international treaty that made shipping between different countries easier and cheaper at the time.
However, over time, countries such as China have been able to take advantage of the treaty to ship goods to the US at subsidized rates.
This has come at a cost to US taxpayers and has disadvantaged US retailers and ecommerce businesses.
Today, it’s possible to ship a small package from China to the US for less than it costs to send that same package domestically within the US.
And it’s much cheaper to ship goods from China to the US than the other way around.
This is why websites like AliExpress are so popular and marketplaces like Amazon and eBay are packed full of Chinese products.
There have been many examples of Chinese companies producing counterfeit and knockoff products and undercutting US businesses, aided by cheap shipping costs.
In 2018, the US government announced it was pulling out of the UPU, saying foreign postal services have been taking advantage of cheap shipments, especially China.
It’s worth noting that all of this is happening within the context of a US-China trade war, so relations between the countries are already quite tense.
The idea behind the US leaving the UPU is that it will level the playing field for international shipping and give US companies a better chance at competing on price with Chinese companies.
To anyone who’s built a business selling or dropshipping goods from China, this news might come as a shock.
At this point, things were looking a bit bleak for dropshipping. Some were celebrating the proposed changes, while others were worrying about the future of their ecommerce business.
But then THIS happened…
At a special meeting in September, the UPU voted to allow member countries to effectively set their own foreign postal rates.
This move has been viewed as a compromise to keep the US happy and keep them in the UPU.
This means that the US will soon be able to set its own rates for packages arriving from foreign countries.
So you can expect that shipping packages from China to the US is going to increase.
It may not be as bad for dropshipping as first thought.
The new rates will initially be capped at 70% of US domestic rates, with the option to increase 1% each year up to 80%.
This means that it will remain cheaper to ship from China to the US than within the US, but it won’t be as cheap as it has been.
Could China step in?..
It’s possible that the Chinese government steps in and subsidizes shipping to the US itself.
China is the world’s largest manufacturing hub and it has relied on shipping subsidies for more than a century.
It may be worth more to China’s economy to allow its companies to retain cheap shipping than to deal with the consequences of increased shipping costs.
What does this mean for dropshipping businesses?
This is probably the question that most of you want the answer to.
The new UPU deal, known as “Option V”, will mostly impact on the shipping of small packages under 4.4 pounds (2 kilograms). That means dropshipping is going to be impacted.
But how severe is that impact going to be?…
Firstly, let me cover off the basics for anyone who’s new to the concept of dropshipping.
What is dropshipping?
Dropshipping is an ecommerce business model in which retailers don’t keep products in stock, but rather forward customer orders to a supplier, often in China, that then ships the goods directly to the consumer.
It’s popular because the barrier to entry is low. You don’t need capital to buy bulk stock and it’s easy to add profit margins on cheap goods from China.
The subsidized shipping has also come in handy for those who’ve built businesses using this method.
Read more: Your Complete Guide to Dropshipping
So… is dropshipping dead?
Since the US first announced it wanted out of the UPU, there have been a lot of articles and forum posts saying that dropshipping is dead.
Let me be clear…
Dropshipping is NOT dead.
Dropshipping will continue to be a viable business model, despite the likely increased cost of shipping from China.
Dropshipping from China will become more expensive and the shipping costs will eat into your profit margins, but you’ll still be able to make it work with the right products and pricing.
If you’re running a dropshipping business in the US market and have US suppliers, you won’t be negatively affected at all.
In fact, you’ll probably have an advantage.
Even if you’re using Chinese suppliers, there are things you can do to prepare your dropshipping business for the changes.
How to prepare your dropshipping business
Here are 5 strategies you can use to prepare your dropshipping business for higher shipping costs from China to the US.
1. Use Chinese suppliers that have US warehouses
Here’s a little known fact. You don’t have to ship products from China to work with Chinese suppliers.
Many Chinese dropshipping suppliers and manufacturers have warehouses in the US now.
Companies like AliExpress are stocking up warehouses in the US with bulk products and setting up a fulfillment service to compete with Amazon FBA.
This was done so that Chinese suppliers could offer US customers faster shipping
So it’s definitely possible to dropship products within the US using Chinese suppliers.
However, not all Chinese suppliers have inventory and order fulfillment in the US, so you’ll have to do some digging.
I expect this will become more common, especially if shipping from China becomes more expensive.
If you do decide to dropship from a US warehouse, don’t expect prices to be quite as cheap as you’re used to.
You’ll be absorbing the cost of shipping products to the US and storing them in warehouses.
But prices will still be competitive, and you’ll have the benefit of offering your customers faster shipping.
You can start by simply searching “USA warehouse” or “US warehouse” on AliExpress and making contact with suppliers in your niche.
Or when you search for a product you can choose to filter products by where they are shipped from.
2. Start using US dropship suppliers
This is a great time to start thinking about using domestic product suppliers and manufacturers within the US.
There are a lot of US suppliers that offer dropshipping services.
Of course, US suppliers won’t be as cheap as Chinese suppliers.
But, you can charge a premium for “Made in the USA” products. You’ll have the benefit of fast shipping, which your customers will love.
It’s also easier to work closely with the supplier and develop a more personal relationship.
We’ve got a whole post about finding American dropship suppliers.
3. Diversify your market
If anything, the US threat to leave the UPU and the resulting changes have revealed the problem with having all your eggs in one basket.
If all your customers are in the US, you’re going to be hit hardest by these potential changes to shipping from China.
Now’s a good time to start diversifying your market.
Yes, the US is a big market. But you should also look at selling into the United Kingdom, Europe, Australasia, and even parts of Asia.
If you’re running Facebook ads, you can experiment by targeting groups in those markets.
If you can build a customer base in other countries, you can simply continue to dropship using your Chinese suppliers.
At the very least, it will buy you some time (and income) while you work out how to adjust your operations in the US to account for higher shipping costs.
There’s also less competition in these markets than in the US, so your ad spend should be lower and conversion rates might be higher.
4. Renegotiate deals with Chinese suppliers
If cheap shipping from China really is over, but you’re still set on using Chinese suppliers, you should try and negotiate a better deal for yourself.
Chinese suppliers will be keen to hold on to valuable customers and may be open to dropping prices to account for higher shipping costs.
Here are some tips for negotiation with suppliers.
Basically, you want to try and get the per unit price down so the increased shipping costs don’t eat into your profits too much.
This might be tough to pull off for low-cost items, but you may be able to cover shipping costs entirely by negotiating better rates for high-ticket products.
5. Adopt a different business model
The end of cheap shipping from China might have you thinking about trying a new business model.
Dropshipping is a fantastic low-cost way to get started with ecommerce, but if you’ve been doing it for a while you may want to try something different.
For instance, buying bulk products at wholesale prices may be more viable.
That way you only pay for shipping whenever you place a large order. That might be once a month, or a few times a year.
Once you have bulk goods in the US you can offer customers better domestic shipping rates and times.
This requires a greater investment of capital up front, but it can result in greater profits.
You’ll also avoid having to pay higher shipping costs every time you sell an item, which might be what happens if you continue dropshipping from China.
You can check out our guide to the different ecommerce business models here.
Dropshipping is here to stay
Being in business is all about being adaptable and responding to change.
The potential end to cheap shipping from China will be a major change for a lot of dropshippers.
But there’s no reason to panic. Dropshipping isn’t dead. In fact, these changes could be better for dropshipping in the long run.
More Chinese suppliers with US warehouses? More business for US suppliers? More competition in the dropshipping space?
This is all good news.
We’ll be watching developments closely and will keep this article updated when we learn more.
In the meantime, make sure to prepare your dropshipping business for potential changes.
That way, no matter what happens, you’ll continue to be successful.
If you’ve got any questions or thoughts on this topic, or ideas for how dropshipping businesses can adapt to the proposed changes, please comment below.
Reference Link: https://www.salehoo.com/blog/cheap-dropshipping-from-china