The US trade war with China may change the playing field for dropshippers and Amazon sellers alike, but how?
The White House appears to be doubling down on enforcing more tariffs in the growing US trade war with China. On the heels of the announcement that the United States would be imposing tariffs on $200 billion worth of goods being imported to the US from China, President Trump made another bold move that is sure to shake up the community dropshippers and Amazon sellers.
DISCLAIMER: The goal of this article is not a political one, but rather how the current geopolitical landscape may affect Amazon sellers and US-based dropshippers. If you fall into one of those two groups, you may be surprised at how these new changes could affect your business. This is different from the larger tariffs instituted by the US on imports from China which have already added up to 10% to some sellers’ cost and could possibly grow to 25% on select items in 2019. We’ll touch on those in another blog.
A Raw Deal for US, but Good for Dropshippers?
The Trump Administration made a recent announcement about its plans to withdraw from the Universal Postal Union (UPU) Treaty, a 144-year-old treaty that governs global postage rates.
This treaty makes it possible to ship small packages directly from China to the United States at extremely low rates – better known as dropshipping. Often, these rates are lower than what most Americans pay to ship packages domestically.
Here’s where things get interesting…
In 2010, ePacket delivery was introduced under the same treaty between the United States Postal Service (USPS) and China’s state mail carrier. To qualify for ePacket delivery, an item must weigh no more than 4.4 lbs. ePacket included the addition of tracking and delivery confirmation as well as expedited shipping. This deal was viewed as a huge win for Chinese businesses at the expense of millions of dollars in losses for the USPS.
Let’s put this into perspective:
Using ePacket delivery, you could ship a 4.4 lb. package from China to the United States for roughly $5. However, to ship that same package within the US (ex. from Los Angeles to New York), it would cost $15-$20 or 3x-4x the cost of shipping from China to the US.
Let that sink in for a moment.
What does all this mean for Amazon sellers and US-based dropshippers?
What This Means for Dropshippers
Let’s start with dropshippers—specifically those in the US who use the “low barrier to entry” model to start e-commerce businesses. The ePacket delivery option from China has allowed this model to flourish in recent years.
It goes something like this:
- Set up a Shopify storefront
- Integrate the storefront with Oberlo and AliExpress
- Take orders from US-based consumers (usually only one item at a time)
- Chinese companies on AliExpress ship each order to the US, creating the ultimate automated e-commerce machine.
The benefits this machine has created are (almost) endless:
- Little to no overhead
- Low capital requirement
- Low risk
- Ability to test multiple products until you find a winner
While this model has benefited greatly from many efficiencies that would blow the minds of our parents and grandparents such as lower costs and automation, it’s coming to a screeching halt—and here’s why:
With the current administration cracking down on trade policies (particularly between the US and China) and the end of E-Packet delivery looming on the horizon, it may be time for dropshippers to explore a better business model before they’re left “holding the bag.”
What is Better Than Dropshipping?
If you’re in the e-commerce or digital marketing space, you may already be familiar with the ever-growing trend of selling private label products via Amazon FBA.
There are many benefits to using Amazon as a sales channel compared to dropshipping using your own online storefront, but there are two main benefits that stand above all others:
- Trust (or ‘conversion’ if you’re a marketer)
If you currently operate your own e-commerce store, you know that getting traffic is the hardest part, even if you’re a wizard at paid or organic traffic.
But here’s a little secret: Amazon has traffic and tons of it.
In 2018, Amazon accounted for 49.1% of online retail sales in the US. So there’s plenty of traffic on Amazon to go around. The only problem: an incomplete product catalog. That’s where you come in as a 3rd-party seller to fulfill the needs of customers looking to buy YOUR products.
Don’t have a product to sell yet?
Download the 10K Top Selling Amazon Products List augmented with Helium 10 data to help you pinpoint winning-product opportunities.
But what about trust? Amazon has plenty of that too.
In fact, their customers trust them so much that they keep their credit card(s) on file, so they can do cool things like buy with one click.
That’s a far cry from all the convincing you have to do on your Shopify storefront to get a prospective customer (who’s never even heard of you) to convert and buy your “incredibly unique and high-quality yoga mat.”
In terms of conversion, it’s not uncommon to see a 30-40% conversion rate on a solid Amazon product listing. Normally that’s unheard of in E-commerce, even for the top 1% of marketers in the world. Bottom line: it would be very unwise to ignore Amazon as a sales channel.
If you want to learn more about Amazon FBA and it’s amazing opportunities, check out the AMPM Podcast hosted by our own Manny Coats for free information about how to grow a business on Amazon.
What Does This Mean for Amazon Sellers?
While this new policy sounds foreboding, there is a silver lining.
Since shipping small items from the US to China will undoubtedly become much more expensive, it will mean fewer counterfeit products and hijackers to steal your sales and tarnish the reputation you’ve worked so hard to build with your customers. It will soon become much too costly for others to ship counterfeits of your product from China to the US.
If you’re one of the thousands of sellers who’s wondered when Amazon will find a way to cut down on hijackers and counterfeit products, this new proposal could be your silver bullet, or at the very least cut down on the problem.
If you’re looking to build up your “off-Amazon” presence, you’re also in a great place. These new changes will allow you to be more competitive from a shipping cost standpoint against those who previously had an unfair advantage with ePacket delivery by shipping products from China to the US.
Whether you’re an Amazon seller looking to continue growing your business or a dropshipper contemplating a new business model altogether, don’t ignore the massive opportunity that Amazon FBA presents. Play by the rules (you too, black-hatters) and continue building a business that brings value to your customers. It’s these businesses that are sold for the highest multiples and can allow you to exit with a massive payday. And who doesn’t want a massive payday? You might hit speed bumps along the way, but in the end, you’ll win.
It’s never been easier to start, scale, and sell an e-commerce business, and we have Amazon to thank for that.
What do YOU think the new changes will mean for e-commerce businesses?
Share your thoughts in the comments!
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