What is dropshipping? Definition, examples, benefits
A store that doesn't have any products in stock? That's dropshipping. Here's everything you need to know about one of the hottest trends in retail e-commerce.
Dropshippers are scrambling for other suppliers as the U.S. moves closer to eliminating its de minimis exemption for imports worth less than $800 from China and Hong Kong.
Termination of the loophole, included in a raft of tariffs and trade policies issues by the Trump Administration, is set to close for Chinese imports May 2.
The end of de minimis threatens to take a big bite out of the profits of dropshippers who rely on Chinese suppliers. With the dropshipping model, a business or individual sells products and fulfills orders through a third-party supplier or manufacturer.
The popular fulfilment model offers entrepreneurs a way to get an e-commerce business up and running quickly since there’s no need to buy and store inventory. It’s a low-risk and highly scalable model that doesn’t require a big up-front investment, making it
But now, dropshippers dependent on open trade with China face an uncertain future.
De minimis and dropshippers
President Donald Trump’s tariffs are impacting all industries and sending shockwaves through global markets, but the end of the de minimis exemption hits e-commerce retailers and dropshipping particularly hard.
Trump initially announced termination of de minimis in February along with a set of sweeping tariffs, but delayed elimination of the policy for imports from China and Hong Kong until the Commerce Department had systems in place to collect the tariffs.
Beginning May 2, low-value imports from China will be subject to a duty rate of either 30% of their value or $25 per item.
De minimis shipments accounted for 92% of all cargo entering the U.S. in 2024, according to U.S. Customs and Border Protection, which processes approximately 4 million de minimis shipments a day. Officials have said criminals exploit the tariff loophole to bring illegal drugs into the country.
The de minimis exemption is used heavily by low-cost Chinese e-commerce retail giants like Temu and Shein, but also by small dropshipping businesses, which are already feeling the fallout of the trade war between the US and China.
One dropshipper told CNBC that their business saw revenue drop 33% as selling in the US gets difficult with products from China getting held up for border inspections.
Searching for new suppliers and solutions
The global dropshipping market has been growing rapidly in the past several years, but the de minimis termination and tariffs likely will alter its trajectory. Grand View Research estimated the market’s value at about $365 billion in 2024.
Advanced technologies like AI and automation have streamlined dropshipping operations, according to the research firm. “The affordability and accessibility of dropshipping have contributed to the growth of solopreneurs and small-scale online retailers, driving market expansion,” analysts said.
Now, however, dropshippers that source their products from China face the potential of higher costs, longer shipping times, and shrinking profit margins.
Dropshippers are considering different ways to respond and protect their business:
- Dropping Chinese imports and searching for alternative sources. However, for some products, this might be impossible if not prohibitively expensive.
- Selling to markets outside the U.S. and shifting advertising dollars to other regions
- Raising prices or adding temporary tariff fees.
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U.S. consumer sentiment has dropped a stunning 27% YoY and continues to plummet as concerns over job security, inflation, and a volatile stock market climb.
Moving forward minus de minimis
The Trump tariffs and trade policies have some questioning whether dropshipping remains a viable model. Clearly, dropshippers relying on Chinese suppliers or China-based online retail marketplace AliExpress have a lot of work to do.
Those who already source product in the US and sell to American consumers will move ahead, as will those that successfully diversify their suppliers and markets. However, anyone selling products in the US face growing consumer pessimism as Americans struggle in a volatile market and recession fears grow.
In April, consumer confidence dropped for the fifth month in a row, plunging to the lowest level since the early days of the COVID pandemic, The Conference Board announced Tuesday.
“The decline was largely driven by consumers’ expectations. The three expectation components—business conditions, employment prospects, and future income—all deteriorated sharply, reflecting pervasive pessimism about the future,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board.
Tariffs are top of mind for consumers, who expressed concern about tariffs increasing prices and negatively impacting the economy, the board’s survey found.
A survey by the University of Michigan also showed a continued decline in consumer confidence in April.
“Even more concerning for the path of the economy, consumers anticipated weaker income growth for themselves in the year ahead,” Surveys of Consumers Director Joanne Hsu said. “Without reliably strong incomes, spending is unlikely to remain strong amid the numerous warnings signs perceived by consumers.
