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Dropshipping from China: 4 Reasons Why It Doesn’t Work
Posted on — 26 CommentsSuggestion: Watch the 10 minutes video tutorial before reading this article
Dropshipping is a sales and delivery method that enables businesses to sell products, without actually keeping any in stock.
When a buyer place an order, the seller then forwards the buyer details to, and money, to the actual supplier – which is normally called the dropshipper.
Below follows an overview:
Step 1: The Buyer place order from Company A (Seller)
Step 2: Company A (Seller) request a product dispatch from Company B (Dropshipper), directly to the customer
Step 3: The product is shipped directly from the Dropshipper, without ever being handled or processed by the seller.
We can help you manufacture products in China, Vietnam & India?
- 1. Product design and material selection
- 2. Finding suppliers in Asia
- 3. Product samples and payments
- 4. Quality control, lab testing & shipping
“How does dropshipping work?”
The seller charge a higher price than the dropshipper does, and keeps the difference when the payment between the two is settled.
The seller may pay the dropshipper on an order to order basis, or after a certain number of orders or time period.
From a seller perspective, this is ideal, as the seller can offer a whole range of products without investing in a large stock.
The Dropshipper benefits too, as they don’t need to invest in sales and marketing, as this taken care of by their sellers (which are sometimes called affiliates).
For the buyer, it shouldn’t make any real difference. Ideally, this should offer lower prices, as the risk is reduced for the wholesaler and seller.
However, when applied in the real world, dropshipping far from the shortcut to success many online sellers hope for. Especially when it comes to dropshipping operations involving buyers in the West, and dropshippers in Asia.
Keep reading, and learn why drop shipping is probably not a sound strategy for your eCommerce business.
1. Your customers are technically classified as Importers, and must therefore pay import duties and other taxes
Let’s say that you place an order from a website, operated by a local company. Then we also assume that the seller is using a dropshipper in China, to deliver that product.
The seller forwards your details, which are printed on the airmail parcel – and shipped all the way to your address.
Here lies a major issue with international dropshipping.
As you receive a parcel from abroad, you therefore ‘become’ the Importer – which means that you are liable for all import duties and other taxes that may arrise.
In addition, you may also need to submit documentation to the local customs authorities, to prove that the declared customs value is correct (which it rarely is, as I will explain later in this article).
Most customers don’t fancy dealing with the customs authorities, and they certainly don’t appreciate unexpected costs.
From a buyer’s perspective, dropshipping often comes off as sketchy, and not something to expect from a serious eCommerce company.
That said, it’s not only a matter of managing your customer relationships.
It is also possible that Dropshipping may be seen by local tax authorities as a method to avoid paying import taxes.
In many countries, there are ‘customs value thresholds’, allowing businesses and individuals to buy low value items (i.e., below US$50) from abroad – without paying any import taxes.
However, all import taxation codes are very clear on the fact that such thresholds may not be exploited.
And yes, I would say that dropshipping operations run a high risk of being classified as such, if they repeatedly ship low value goods directly to customers, while pocketing the difference.
So, is it possible to still dropship products and identify the seller, not the buyer, as the importer?
Yes, but only with an intermediate logistics partner in your country, which repackage and forwards each individual parcel from China, to the end customers.
2. Long delivery times and delays that can destroy your business (or at least get your sellers account suspended)
Economy air freight from China, which is the most common freight method used by dropshippers, has a lead time of 12 – 14 days.
As we approach the age of same day delivery, that is a hard sell.
And, as if 2 weeks as not long enough, it often takes even longer to fulfill a dropshipping order.
Around the Chinese new year, and other national holidays, the delivery time can stretch up to one month.
3. ‘Dropshipping products’ are rarely made in compliance with overseas product safety standards and labeling requirements
The products you can find at the major dropshipping websites tend to be originally made for the domestic Chinese market.
And that’s a serious issue. At least if you’re based in the United States, Europe, Australia or other developed markets.
Products made for the domestic Chinese market are almost without exception never compliant with foreign product regulations and safety standards.
And why would they be? China has it’s own set of safety standards and labeling requirements – that don’t correspond with those in other countries.
For example, apparel in the USA must carry a care and country of origin label, in English.
For obvious reasons, ‘Made for China’ textile labels are not in English.
This problem is even more serious when it comes to ‘sensitive products’, such as toys and electronics – which must comply with strict safety standards.
Keep in mind that it’s you, not the Dropshipper, that will be held liable if any of your customers are injured, or if their property is damaged.
4. Expect nothing but razor thin profit margins
About 10 years ago, when dropshipping was still a novelty, you could add a decent margin on top of the dropshipping price.
But 2007 was a long time ago, and things are not the same.
Today, the marketplace is flooded with China based sellers, offering the same items found on various dropshipping sites, for just a few percent more than the dropshipping price.
In addition, many Dropshipping websites have decided to cut out their sellers and affiliates, completely, and target overseas customers directly.
Finally, Dropshippers also find themselves driven out of business by companies such as Lightinthebox.com and Wish.
Conclusion
Dropshipping can only work under the following conditions:
1. If you sell ‘exclusive products’ that are not available to any seller on the internet. This requires that you form a relationship with a manufacturer, that agrees to ship individual units.
2. The products pass through an intermediary logistics partner, rather than shipping the items directly to the customer.
3. You ensure that the products comply with the safety standards, labeling requirements and documentation requirements in the customer’s country.
But if you were to go through all the hassle of building a ‘sustainable’ dropshipping supply chain, all the benefits of the dropshipping concept are lost.
However, it is not outside the realm of possibility that we will see a new breed of Dropshipper in the future, that actually takes care of these issues. But, as far as I know, no such company is in existence today.
We can help you manufacture products in China, Vietnam & India?
- 1. Product design and material selection
- 2. Finding suppliers in Asia
- 3. Product samples and payments
- 4. Quality control, lab testing & shipping
Co-founder of Asiaimportal (HK) Limited and based in Hong Kong. He has been quoted in and contributed to Bloomberg, SCMP, Alibaba Insights, Globalsources.com, China Chief Executive, Quartz Magazine and more.
26 Responses to “Dropshipping from China: 4 Reasons Why It Doesn’t Work”
Comments are closed.
I drop from AliExpress to Amazon. It’s worked just fine for me, but YES the shipping times are a problem and I have to MANUALLY TYPE in each order/persons address every night. The time and work adds up, I spent about 2 hours every night placing orders. But I can do it in front of the TV and it’s a good way to test out a product before I decide to FBA it. If I’m getting 6-7 DropShipping orders a day from 1 product, it would be better if I catered to the Amazon Prime customer and made my product FBA. I than can go ahead and purchase 500 or 1000 of these items. It’s a good way to test a product out. Overall, I give DropShipping a 6 out of 10. I also spent 0 dollars. (Besides on UPC codes, JungleScout/ViralLaunch membership, and getting an Amazon Business Account).
I didn’t have to use any PPC because my main product was a trend and I was one of the first people to list it on Amazon, therefore I had no competition. If anyone has any questions feel free to message me.
I agree, you have a few good points.
Does Amazon not rip you off even if you are buying 1000 or 500 of an item?
Hi Frank,
What do you refer to?
Hello.
I’m late to the game. Can you please tell me how I as a dropshipper can prevent my customers have to pay the customs tax on the items that the order from my website,which in turn I order from say dx or Aliexpress.
Kind Regards!
My name is Pac and I am from a research-based company doing a research.
We hope you can provide us with information about the insight of the drop shipping business scene in China and in an exchange with we will pay a fee for the information.
Here are the questions we like to hear more from you
-Do you operate a drop shipping business? Or buy your own goods from a various supplier?
-Is there any Platform like “YouTube” where beginner watch videos about selling on eBay?
-Is there any Platform like “Facebook” where everyone community and share the news about the drop shipping?
-What the websites people use to drop ship their products?
-Any courses out in the market in China to teach people how to do drop shipping?
Hello Pac,
no, we don’t operate a dropshipping business. We are a consulting company!
I never heard of a platform like facebook or youtube that specialize on “dropshipping”. However, I’m sure you can find a lot of youtube videos and some facebook / linkedin groups that focus on dropshipping.
The biggest problem I’ve found with dropshipping is that it is super hard to actually find good products to sell that ALSO not too many other people are selling. This is a good article though and it definitely covers the other problem areas.
Great article Fredrik will surely visit your blog again!
Correct, that is perhaps the biggest issue with dropshipping today.
And it’s not going to get easier in the future!
Thank You for the article
Glad you liked it!
I’m a young entrepreneur interested in dropshipping and a I really appreciate your info, since it helps me to weight the possibilities and risks of this business. TY.
Glad you did :)
Excellent post. I have love this article as it is just straight to the point.My only challenge is how to check for the quality of this products from china. Are there way to do this or are there suppliers that are know for great products or quality products .I for one am interested in female beauty items . What are your thought on these ? Please help.
http://www.makychurchill.com
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This is the truth behind this drop shipping. For sure my comments will be deleted because it ruining his selling webinar business. Don’t waste your money and time on this like I did
You seem to be very confused. If you bother to read this article you will see that we are not exactly in favor of dropshipping as a business model.
If you are only here to fabricate accusations, then please do not post any more comments.
The only drop shipping business that is actually working are:
– those Facebook pages with millions of likes because you don’t have to pay facebook for advertising
– people with high budget that order items from China with their own logo on it and they sell LOCALY, not on the internet, because on the internet nobody know that you exist and you have to pay advertising which it costs much more then you make
Drop shipping was a great deal in 2007, but everybody was informed trough those people who are offering “how to get 20k a month” or “how to get rich overnight” and now everybody know that items are coming from CHINA and it’s shit quality and expensive.
Nobody will buy from your drop shipping store anymore, if they want shit items they buy directly from ebay, aliexpress, Alibaba, amazon, etc.
What are you talking about? We are not a “Dropshipping store”
Funny how you talk about other people who “sell their courses and have no clue” but it is pretty obvious to me, that you have no clue about drop shipping as well and never even sold a single item.
1000 US$ on Facebook Ads to test? Total bullshit. If you need to spend 1000 US$ on a single product to see if its making any sales than you should probably go back to your 9-5.
Products that come from CHINA are shitty quality? That is sooooo funny. I can guarantee you, that 90% of every household/electronic item in your house is Made in China.
Is the Apple iPhone shitty quality? I don`t think so!
Hi Chris,
I see what you mean, but you can’t compare Apple products to what you find at Dealextreme and other dropshipping sites.
There is no such thing as “China quality”. It all depends on the spec sheet. Some products are very high end, while others are on the extreme opposite.
It is just an idea used by people like this one to sell their “webinar” and when people find out that they have to spend over 200USD/month just for setting up a website and over 1000USD on facebook just to test IF an item sells. There are people who tested 20 products without any single sale.
This is the idea to make them quit so they are left with the money and you will get an excuse like “it’s not my problem that you did not choose the correct item”, or “you did not read my terms and conditions”, or anything else….
Probably this comment will be deleted because this is the truth.
i personally know people that are making some decent monthly net profit (10k+) with dropshipping
those are just stories from the internet.
Hi Fredrik, Thanks for your great article as always. I have some few questions, if you have sometime to answer them it will be very helpful.
# There are lots of drop-shippers currently making huge money by drop shipping products from Aliexpress and some other china website. I can give you couple of example site like: I can give you many more.
Those sites are making huge money with 30-70% profit margin. They also indicate in their site that the shipping will take somewhere between 10-30 days and they are not responsible for duty and taxes and people still buying hugely around the world. So my question is, if drop-shipping doesn’t Work then how can are they making chunk of money :)?
# Can you tell me name of some intermediate logistics partner who will do repackaging and forward the parcel and take care of all the duty and taxes? can i do it with a Chinese logistics partner? I have seen a top level drop-shipper are offering that customer free duty and taxes on their order around the world.
# I am also about to start a drop-shopping store but my ultimate goal is with Private label, do you have any recommendation or suggestion for me, and also any article about Private label?
Thanks,
Mohammad
Hi Mohammed,
1. This article is about dropshipping from China, to developed markets – say the EU or US. It’s certainly possible for China based dropshippers to make a lot of money, as they don’t need to care at all about customs regulations and safety standards in other countries.
2. Unfortunately we cannot refer to any company that is not an official partner of ours
3. I suggest you check out our webinars for more about private labeling: http://www.chinaimportal.com/webinars