Is Dropshipping Dead? No More Cheap Shipping from China


By Thursday September 12

Everything you need to know about the USPS 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 US government is planning to back out of a 144-year-old deal that will make it more expensive to ship packages from international destinations, including China.

This means that every dropshipping business that relies on Chinese suppliers will be forced to pay a lot more for shipping.

This is going to eat into dropshippers’ profits and, potentially, make the business model unviable for sellers in the US market.

Let that sink in for a moment. Dropshipping from China to the US might be over.

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.

But first, let’s rewind and explain exactly what’s going on and how it’s going to impact on you and 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 between some US states.

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.

But US businesses and the media have been raising this issue for quite some time (see here, here and here). 

There will be a lot of people who support this move by the US. There will also be a lot of people worrying about what it means for dropshipping.

But it’s not a done deal … yet

The 192 members of the UPU are meeting in Geneva, Switzerland, in late September to “make decisions on a possible revision of small packet remuneration rates”. 

That’s UPU-speak for: “We’re going to decide about possibly changing the cost of small packet postage.” 

The meeting is seen as a last-ditch effort to stop the US from leaving the UPU.

The US has reportedly asked the UPU for permission to decide its own shipping subsidy levels.

The deadline for this proposal is September 30. 

Either way, the US leaving the UPU or being allowed to set its own shipping subsidy rates will likely result in a similar outcome - the end of dirt cheap shipping from China.

Unless…

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.

While that won’t solve the problem of Chinese companies undercutting US companies, at least US taxpayers won’t be paying the subsidy.

There’s also the possibility of a change of government in the US in 2020, which could result in this whole thing being reversed.

As I said, this is still up in the air and very much “watch this space”. I’ll update this article as the story develops.

What does this mean for dropshipping businesses?

This is probably the question that most of you want the answer to.

The US leaving the UPU will have a wide range of effects on the entire international postal system - from sending letters and postcards, to shipping large boxes of merchandise. 

But I’m going to focus on ecommerce, and most specifically, dropshipping.

What is dropshipping?

Dropshipping 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 wants 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 proposed changes to shipping from China. 

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 potential changes.

The worst case scenario

If the US does leave the UPU and China doesn’t decide to step in and subsidize shipping then the cost of dropshipping from China is going to increase.

If the cost of shipping from China to the US increases, dropshipping from China will become much more difficult.

It might get a bit chaotic for a while. And when the dust settles, the dropshipping businesses that can adapt and improvise will survive.

That’s the worst case scenario. 

But it probably (hopefully) won’t be that bad. And even if it is, there are things you can do to give your dropshipping business the best chance of survival. 

So, let me lay out the ways that you can safeguard your dropshipping business from the potential fallout of higher shipping costs from China.

How to prepare your dropshipping business

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.

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, this proposed move by the US government to leave the UPU has 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 of 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.

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.

 

 

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