Every single day, I get at least 10 emails asking me how to get started with AliExpress dropshipping. And despite my best efforts to steer these readers towards a more sustainable ecommerce business model, they often ignore my advice.
Well thanks to Trump, ePacket shipping, a crucial component of Aliexpress dropshipping, is going up in price dramatically which will basically kill this business model altogether.
In addition, all companies that facilitate Aliexpress dropshipping like Oberlo are in big time trouble.
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What Is Dropshipping And How Does It Work?
One of the reasons that new ecommerce entrepreneurs are attracted to dropshipping is because it costs very little to get started.
The beauty of dropshipping is that you don’t have to carry any inventory. Your primary responsibility is to sell products and someone else fulfills the order for you to the end customer.
In other words…
- You don’t have to worry about storage costs.
- You don’t have to deal with shipping and fulfillment
- You don’t have to invest any money upfront for inventory
Dropshipping is truly the cheapest way to start an ecommerce business.
And for under $100, you can easily open up a store on Shopify, get a few sales funnels set up and immediately start selling online.
You are also not limited to selling on your own website. You can list your products on Amazon, generate sales and have the vendor send the product directly to your customer once an order has been placed.
How AliExpress Dropshipping Works
AliExpress dropshipping is a special type of dropshipping where all orders are fulfilled directly from China via AliExpress.
What is AliExpress?
AliExpress is an Ebay-like service based in China that is owned by Alibaba. It’s a marketplace where individuals from all over the world can buy direct from Chinese companies.
Editor’s Note: I’m using the term “Chinese company” quite loosely here. Sellers on AliExpress can be individuals, small businesses, trading companies or factories.
The main difference between AliExpress and Ebay is that AliExpress is much larger and far less expensive.
Because AliExpress is based in China where the labor costs are substantially less, you can find products on AliExpress that are significantly cheaper than anywhere else.
The huge disparity in cost allows you to make a profit by selling an item at US prices and having it shipped directly from China.
Here’s a quick example to illustrate the difference in price.
This snoring mouth guard costs only $1.73 per piece on AliExpress
But on Amazon, it sells for $26.00.
As you can see, the markup for this product is crazy high.
Imagine selling a product for $26 and buying it for only $1.73 without any upfront cost of inventory!
But as with everything in life, there’s always a catch.
When a customer buys something from you that is fulfilled by AliExpress…
- Shipping can take several weeks if not months
- Sometimes the item is junk, counterfeit or broken during shipment
- The quality control for AliExpress items is terrible and you have no control
- You have to perform customer service on cheap, crappy products where delivery times are not ideal
- Your prices on AliExpress may change at any time
Does this sound like a business you want to run in the long term?
If you’re still considering it, then continue reading below…
What Is ePacket Shipping?
Now there’s one thing that we haven’t discussed yet and that is shipping costs. Shouldn’t shipping from China cost an arm and a leg?
This is where ePacket shipping comes into play.
Because of a 144 year old agreement called the Universal Postal Union (UPU) treaty, companies in China can ship small packages directly to consumers in the United States at ridiculously low rates which are way lower than any American company.
For example, shipping a small package to Fairfax, Virginia, from North Carolina costs $1.94. But shipping a package from Shanghai, China to Virginia only costs $1.12.
Yes. You read that correctly.
It only costs $1.12 to ship a parcel from China to the US!!!!
Just for fun, I pulled up the USPS website to check how much it would cost to ship a very light package to China from California and here’s what I found.
To ship a mouth guard to China would cost me $23.50! But to ship from China to California only costs a Chinese vendor less than $2!
This huge shipping cost discrepancy is what allows AliExpress dropshipping to be a viable business.
Using our mouth guard example above, you can sell a snoring mouth guard for $26 and pay a Chinese vendor on the order of $5 (including shipping) to have it shipped directly to a customer in the United States.
That’s a $21 dollar profit with zero upfront risk!
Why AliExpress Dropshipping Is Dead
But thanks to President Trump, the United States has placed major pressure on this antiquated 144 year old treaty known as the Universal Postal Union.
As you can tell from my simple example with snoring mouth guards, ePacket shipping provides China with a huge one way advantage over the US in terms of shipping costs.
And this has contributed to the big flood of cheap Chinese junk being sold to the US over the years.
As a result of the Universal Postal Union negotiations, USPS will now charge much higher fees on packages from all international destinations and not just China.
These higher fees will just about destroy any profits that can be made with an AliExpress dropshipping business.
A snoring mouthguard shipped from China will now cost $25.50 as opposed to $5 leaving little or no room for profits.
Say goodbye to AliExpress dropshipping!
When Are Prices Going Up? – An Update On The UPU Negotiations (9/2019)
A number of you have been emailing me for updates on the United States’ agreement with the Universal Postal Union(UPU) because the time frame for the price increases were not set when this post was published.
As of September 25, 2019, the United States reached a compromise with the UPU to not withdraw from the union. However, the U.S. will now have the freedom to impose “self-declared rates” on distribution of mail from all foreign countries including China.
This agreement goes into effect July 1, 2020 and you can bet that shipping from China will go up in price dramatically!
While the exact shipping prices have not yet been declared, the United States and Trump came out of this deal getting pretty much everything they wanted.
The pricing changes will apply to most packages sent internationally that are under 4.4 lbs which applies to almost every AliExpress dropshipping transaction.
Mark my words. AliExpress dropshipping will no longer be profitable starting July 1, 2020. If you are currently considering this business model, there is already a countdown timer on its demise.
Other Effects Of ePacket Going Away
Higher international shipping from China will cause a huge ripple in the ecommerce industry that will hopefully benefit both consumers and sellers alike.
Today, much of the counterfeit sales coming from China is made possible because of cheap ePacket shipping.
Citing a specific example from the Atlantic, a man by the name of Mike DeVries used to sell wheel bearings for a certain brand of lawnmower on eBay for $5 to $8 a piece.
But Chinese sellers started selling packs of 20 wheel bearings for only $10 and basically put him out of business.
Here’s the kicker.
Mike was paying more to ship his bearings to people in the US than the Chinese sellers were paying to ship these bearings all the way from China!
Right now there are thousands of Chinese sellers on Amazon and Ebay who are taking advantage of ePacket to sell cheap, light items direct to US consumers.
In theory, the increased costs of international shipping should reduce the amount of merchant fulfilled junk we see on Amazon and Ebay.
In addition, companies like Oberlo, who facilitate AliExpress dropshipping on Shopify, will become far less attractive.
What About Other Forms Of Dropshipping?
Even though AliExpress dropshipping is probably going to die, it doesn’t mean that regular domestic dropshipping is going to go away anytime soon.
Today, a large number of retailers rely on dropshipping to fulfill their orders directly to customers without having to carry inventory.
For example, Zappos used dropshipping to dominate the shoe market long ago and most of the large retail stores in the United States rely on some form of dropshipping for their product fulfillment needs.
For small business owners, dropshipping can still be a viable ecommerce business model but it’s getting much harder thanks to Amazon.
After all, why would you buy a branded product on a no name shop when you can get it cheaper and faster on Amazon?
In general, my colleagues who are the most successful with dropshipping tend to either sell large, big ticket items or products that can be upsold with accessories or services.
It also helps to dropship products that are conducive to content marketing and customer education.
That being said, dropshipping can be a good way to dip your toes in the ecommerce waters especially if you have very little upfront money to invest in your business.
You can start out with a dropship store, find out what sells well and then choose to stock or private label your winners.
In case you are interested in domestic dropshipping, you need to understand the pros and cons thoroughly.
Please read my post on Dropshipping – Why It Isn't As Easy And Simple As You Think
The Most Sustainable Ecommerce Business Model
If you followed MyWifeQuitHerJob.com for any length of time, you probably know that I’m not a huge fan of dropshipping as a long term business model.
Not only are the margins lower (~20%) but you don’t have any ownership of your brand.
Because there will be other vendors selling the exact same item as you, it’s difficult for your shop to stand out.
You also have very little control over your customer service.
For example, if your dropship vendor often ships out products late, that will make your company look bad.
If your dropship vendor is out of stock on an item you just sold, you are responsible for contacting the customer.
If you want to be in the ecommerce game in the long run, you really have to own your own brand and sell private label products.
When you own your own brand, you are in full control of your own destiny.
- You get to set the price
- You control where you can sell your products
- No one can copy your brand or trademark
- Your margins are much higher (>80%)
Running a private label ecommerce store often requires a little more upfront investment but you avoid being at the mercy of external factors that can put you out of business.
If you want to learn more in depth information about all of the ecommerce business models, then check out my post on Private Label vs Retail Arbitrage vs Dropshipping vs Wholesale – 8 Ecommerce Business Models Compared
In the grand scheme of things, the AliExpress dropshipping model was never going to last.
And when it comes to entrepreneurship, the faster and easier it is to start a business, the less sustainable it will be.
Think about that statement when you consider starting your next business.
Editor’s Note: If you are interested in learning how to start your own online store, click here to take my FREE 6 day mini course on ecommerce.
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