Dropshipping from China

The Internet is filled with stories about successful dropshipping enterprises, and many of them are based on products imported from China. Several websites also offer cheap products from worldwide brands. But is it reasonable to engage in drop shipping practices from China?

What is dropshipping

Dropshipping is a business model in which the retailer does not keep goods in stock. Instead, they transfer customer orders and shipment details to either the manufacturer or a wholesaler. One who deals with dropshipping receives money before making the final order so they can keep financial liquidity. Dropshipping doesn’t require “freezing” a big amount of cash while ordering a big shipment.

Problems with dropshipping from China

But the problem arises when the order is transnational. From the legal point of view, if the Chinese company sends you a cell phone or a fur coat, you are supposed to pay a duty fee/value-added tax. Many people think that marking items as “gifts” or “low-to-no value” may work in their case. It depends on the country’s official customs policy and their diligence, but you will be caught sooner or later. Another thing is that if your Chinese supplier sends the product directly to the customer, it will be the customer who is sought by the Customs, and he will certainly blame you.

How to recognize a scammer?

And if you are a customer, follow the saying “grasp all, lose all”. If you see the products of big brands at a low price (less than 20% of the normal retail price), then you are dealing with a scammer for sure. The sites with these products appear and disappear, and it is quite easy to recognize them. All are written in broken English and have a typical template structure. But for those less tech-savvy customers, these webpages look legitimate enough to place an order, and later on, nobody is willing to file a suit about $100 spent on sneakers.

The cost is higher than expected

Usually, the customer is not fully aware that the shop is following the dropshipping model. If the shop is drop shipping from China, an obvious sight is the long delivery time (sometimes up to three weeks). If the shop had its own warehouse, the delivery would not take that long. Sometimes small drop shippers are using eBay or similar web pages to sell products sent from China. At the bottom of the listing, you will see a small note such as “Please understand that buyers should take care of any duties or local taxes if it occurs at destination customs”. In most Western countries, VAT ranges from 10 to 25%, and some of the products are also subjected to duty. When those costs are added to the initial price, the whole purchase won’t be profitable.

Update: following the EU VAT reform, e-commerce platforms have to include VAT to the price of products imported to the European Union. The VAT is even applied to goods of value under EUR 22. If you are a buyer in Germany, sites such as AliExpress are obliged to include a German rate of VAT to the price.

Is dropshipping profitable?

If you are a business person and you are considering drop shipping from China, we would advise against that. Drop shippers take responsibility for the merchandise that they do not even see, they often run out of stock on popular items and lose reputation, and the growing customer awareness means that you will be the person blamed for everything that goes wrong. Drop shipping businesses that source from China appears and quickly disappear not without reason. The financial liquidity of the model may also be compromised since PayPal policies are largely in favor of the customers. Importing from China is not that complicated, better invest more, place bigger orders, and as a result, get bigger profits.