Practical Ecommerce

China-based merchants ship to U.S. for free

As ecommerce leaders and professionals, it is our responsibility to occasionally look at the landscape of the ecommerce industry as well as our specific space within ecommerce and explore potential threats and opportunities.

I did this recently at a local coffee shop, when I was browsing the Internet and noticed merchants selling very inexpensive items with free shipping. I was intrigued. I purchased a few items and waited about four weeks until they arrived. Everything I received was good quality and incredibly inexpensive.

The items were shipped from China.

I began wondering, “How can the seller do this and what could be the impact on my company?”

In this article I will address how Chinese vendors accomplish this. I will not pass judgment of right or wrong. But I will explain what to watch for and what we, as U.S.-based online merchants, can do to deal with this potential threat.

How Can Chinese Merchants Ship Free to U.S.?

First, how can Chinese merchants can deliver an item to the U.S. where the item’s total cost is less than what postage would be for the same item shipped inside the U.S.? This is caused by an international law calling for fees between international postage carriers to be low. The agreement between the USPS and China Post was taken to a higher level in 2010 when the USPS, hoping to ride the ecommerce boom, agreed to not only charge extremely low rates, but to also provide tracking and delivery confirmation services. This made it possible for Chinese merchants to sell into the U.S. market with a major advantage.

This service is called “ePacket.” It allows Chinese ecommerce vendors to ship lightweight items for a much lower price than First Class mail, and it includes tracking information and delivery confirmation. This opened the doors to direct competition between Chinese and U.S. merchants, especially Chinese merchants that sell low-cost, Chinese-made items.

The greatest impact I’ve seen has been on the Ebay and Amazon marketplaces. Also, AliExpress, an ecommerce website owned by Alibaba Group, is becoming a big marketplace in its own right, where Chinese merchants can sell directly to U.S. consumers. U.S.-based merchants must consider this a threat. If Chinese manufactures and retailers can sell directly and compete with U.S.-based ecommerce merchants, some of us may see a loss of market share.

How Can U.S. Merchants Mitigate Threat?

So, how do U.S.-based merchants mitigate this issue, to protect our market share? I’ll start with a generic answer that can be applied to many product lines. Then, I’ll discuss what we’ve implemented at my company, overstockArt.com.

Every U.S.-based ecommerce merchant can deal with this threat in the following manner.

  • Conduct a SWOT analysis. Work with your team to conduct a full Strengths, Weaknesses, Opportunities, and Threats analysis. This will uncover additional threats and also the way to deal with these threats. A SWOT analysis should be done often, as it’s an opportunity to open your mind to both outside and inside factors.
  • Look at your company from a shopper’s point of view. Why are customers choosing your company? What are customers after? What are the benefits of your products? Consider the difference between order winners and order qualifiers. (“Order winners” are the main reasons for customers to purchase a product or service. Order winners distinguish the product or service of a company from its competitors. “Order qualifiers” are the factors that make the product or service eligible by the customers to purchase.)
  • Analyze the weaknesses of the Chinese vendors. What are some things that Chinese vendors can’t do or can’t do as well as your company? A vendor from China may be able to cheaply ship a product into the U.S., to your customer’s home. But it can’t get it there very fast. It usually takes about four weeks. Also, the entire time the customer is waiting, she has to wonder, “Is this item actually coming? If not will I get my money back? Will I have to fight for it?” The delay causes fear and anxiety to the consumer, in other words.

When we did our 2015 SWOT analysis for overstockArt, we discussed the potential threat from China-based merchants. In our case, there are factors that could mitigate this problem. First is the customer experience. Consumers in the U.S. have lots of stuff. They often do not need additional stuff. Instead, they often seek experiences. They enjoy being catered to by quality customer service representatives.

When buying from most Chinese retailers, there is no person that U.S. consumers can speak with. Even if they could speak to someone, the result will not likely be the kind of experience that shoppers receive from our team. Also, in our case, the Chinese vendors are unable to ship the framed art to customers in the U.S. They can only ship unframed art for free, which makes their offer not as attractive to shoppers, who now have to find a way to frame their art.

Furthermore, there is a question of quality. Our art is hand painted. Can Chinese merchants offer comparable quality? The customers must also ask, “How will they be able to return a product?” Last, but not least, our customers (like most U.S. consumers) want their orders delivered quickly. In today’s shipping environment — dominated by Amazon Prime — customers are not willing to wait very long.

All of those factors above will keep the threat from becoming significant, at least in the near term. The approach for overstockArt could be used to address any threat. I highlighted this example since it is likely affecting many U.S. ecommerce merchants and may impact many more in the future.

I would love to hear how other merchants are planning to handle this threat.

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Comments ( 25 )

  1. John Lawson April 13, 2015 Reply

    This has been going on for YEARS! The one part you did not mention in the story is that Ebay is the one responsible for brokering the deal!

    While they go around spouting they “don’t compete with their sellers” … they negotiate against its US sellers for sweetheart deals for knock-off products to flood the US markets.

    That is 100x worse than competing with me…your trying to KILL ME!

    http://about.usps.com/news/national-releases/2010/pr10_058.htm

    • David Sasson April 13, 2015 Reply

      John,

      Hi, thank you so much for the comment. Sounds like your business has been affected directly by this competition. I did not know eBay was part of the agreement.

      Not knowing your business at all, I would still recommend going through the SWOT analysis exercise. SWOT also exposes your strengths, and you might find new ways of dealing with this problem or threat.

      Thanks,

      David Sasson

  2. Luiz April 13, 2015 Reply

    Pretty nuts, particularly that ebay helped set up the agreement.

    Tri-Lateral Shipping Alliance Signed with eBay GC and China Post

    http://about.usps.com/news/national-releases/2010/pr10_058.htm?hc_location=ufi

    • David Sasson April 14, 2015 Reply

      Luiz,

      Hi, thanks for the nice comment. I have to agree that this agreement puts pressure on US merchants, especially ones dealing in inexpensive light weight items.

      The focus for us should be how to compete with them regardless of this arrangement.

      Thank you,

      David Sasson

  3. Amitai Sasson April 14, 2015 Reply

    Hi David,

    The story here goes above and beyond US borders. Chinese merchants are able to ship and deliver items for free all over the world! In the meantime, US retailers can only dream of opening up to international markets due to the high cost of shipping outside of the US unless they set-up shop in the international market they are perusing. This gives the Chinese eCommerce industry as a whole a huge leg-up on its American counterpart, and it is the US Government’s responsibility to allow us as merchants to be able to compete not only in the United States but also abroad.

    • David Sasson April 14, 2015 Reply

      Amitai,

      Thank you for the nice comment. This is an interesting outlook. It speaks to a completely different level of competition. I think this provides an advantage for the Chinese eCommerce industry, but it’s not the whole story.

      This mode of shipping is both cheep and slow. Also, the tracking information while available is not even close to be as good as FedEx. Today in the American market consumers expect to get their purchases in a matter of a few days. And if the trend is going to hold it’s only going to be faster. I assume that most western consumers are heading in this direction. Therefore, while this provides some advantage to the Chinese eCommerce industry in the lower end segment, they would still need to address the speed of delivery issue and other issues relating to customer experience.

      Thank you,

      David Sasson

  4. Reed April 15, 2015 Reply

    Hi David – You should also check out their export documentation. I have seen consumer purchases arrive in bags preprinted with export documentation classifying the contents as a gift. This can enable the shipper to avoid the issue of duties and the possible requirement to include two copies of commercial invoices for purchases of any amount by some countries.

  5. Greg Grenevitch April 16, 2015 Reply

    If this is a problem for your business now just imagine how bad the new requirement to collect sales taxes for 9600+ tax districts in U.S. something merchants in China will not have to do and will give them an additional price edge of 3-15% over their U.S. counter parts depending on where the item is to be shipped.

  6. Richard Stubbings April 17, 2015 Reply

    This is a problem we have in the UK too. The problem initially started when they shipped from China to the UK and due to low costs could undercut UK retailers significantly. This was mostly stopped by UK customers getting stung for import duty and VAT (our sales tax) on import. The customers soon realised that they end up paying up to 25% more than the ticket price.
    Then the Chinese got around this problem in two ways. First by having a UK warehouse and shipping direct from there. As they are not a UK business they are not registered for VAT and thus do not charge it and can be 20% cheaper. This is a hole in the law that is not being chased for some reason.
    The second way they are avoiding this is by offering a “job” to many of the thousands of Chinese students here. The job being to set up as a seller on Ebay and sell this stock warehoused in the UK. Each seller has an annual turnover of less than $100,000 so does not have to register or charge VAT. A large Chinese company could have 20 or more such agents all “independent” and all selling on their behalf.

  7. Carlos Rivera April 20, 2015 Reply

    I’ve seen this going on in Amazon. However, their shipping times are around 21 days (versus our 3-4 days). Any consumer can pickup on this and likely choose a domestic shipper with a slightly higher price and faster delivery time.

  8. Pamela Hazelton April 21, 2015 Reply

    I’ve purchased a few items from Chinese merchants via Amazon. In my case, none of the items were of the same quality, and often when it was a “group” of items, the package came 1 or 2 short.

    Fortunately, many seasoned online shoppers now the downfalls and instead opt for US-based merchants. Many others simply don’t want to wait 3-4 weeks for an order. That’s a deal killer for most ecommerce sites. There’s inexpensive and there’s cheap.

  9. jenni May 7, 2015 Reply

    Does Canada have the same ePacket agreements with other countries?

  10. John May 30, 2015 Reply

    If this is some sort of “agreement” to make international shipping very low, why then can we not sell goods to other countries and get the same amazing shipping cost? (free) Time and time again the sheeple in the U.S. ignore this very real injustice and our government could care less because they are in bed with the wealthy global corporations. We are getting screwed like a tied goat!

  11. Jackie September 28, 2015 Reply

    Microeconomic terrorism funded by the US Government, the fate of all USA E commerce as well as brick and mortar shops hang in the balance of this bad deal.
    1. It costs half as much to send a package from China to Texas as it does to send that same package from a business located in the USA just a few states away.
    2. Packages from China shipped thorough the USPS encounter NO DUTY, NO TAX and NO IMPORT FEES, while USA based business pay import fees, quota fees, federal and state mandated taxes as well as sales tax.
    3. USA businesses that utilize the services of the USPS are actually funding their own competition and eventual economic demise. The USPS loses money EVERY time it is forced to deliver an international package from China, due to an outdated agreement the USPS basically has to deliver packages from China for free, the USPS has even added value features to these packets to make it more attractive, additionally the packages are not charged duty or tax. USA based business are charged profitable rates from the USPS in order to compensate for the free packages they are delivering from China. The Government has created a one way tax free funnel to eviscerate USA based businesses.
    5. Tax payers are indirectly funding this economic terrorism as well, the post office receives tax breaks and loans from the US Government that are funded by US Taxpayers.

    I am not asking for a “break” a “discount” I am asking for a level playing field, I am begging the US government to discontinue its policy of funding this funnel of duty free, tax free, goods that the post office is forced to deliver for free. I ask that the US Post office charge DUTY on all out of country goods as by law it is required to do so, I ask that my government stop using my tax dollars to fund this economic terrorism from China.

  12. Edmund December 24, 2015 Reply

    Jackie’s comment really hit the nail on the head. The point of bypassing import fees is another level of absurdity to this process. So basically we have a US taxpayer subsidized system that reduces Federal Tax revenue by bypassing customs fees and creates an unfair trade practice against US sellers.

    My company imports many items direct from China in bulk and of course I have to pay import duty on the goods in addition to shipping fees, broker fees etc etc. This can be 15-20% additional cost depending on the item.

    This is totally avoided by ePackets. So I direct compete against the company that is manufacturing my goods and they have the advantage of being able to ship cheap to a US destination than I can.

    Yes of course there are ways to combat this issue to a certain extent but there is a portion of the population that simply is looking for the cheapest price out there for an item. You can see the prevalence of this on eBay. Many small business get their start on eBay and other similar platforms so we have designed a tax supported system that reduces federal revenue, create an unfair trade environment, and will reduce the number of jobs in the US. For what? So eBay can increase the number of transactions they make? I have not been able to track down who in the federal government agreed to this but they should be held resposible for negative affects to the US job market and also the lost federal revenue.

    When you read the text on the Tri Lateral agreement you see the USPS claim that was done for revenue generation. For who eBay? With whose cash, US taxpayers (and USPS users via higher domestic postage rates)?

    Yes I have written all my representatives and even some current Presidential candidates to no avail. If anyone has a better contact, please share it.

  13. SUZANNE POWERS April 22, 2016 Reply

    Funny that you are writing this arrival when all signs point to your artists for Overstockart.com are produced in China! See following quote copied from Wikipedia.
    overstockArt.com is an American online retailer of wall décor. They specialize in handmade oil paint reproductions of famous artists, which are produced in a factory based in the Shanghai Free-Trade Zone. The company is headquartered in Wichita, Kansas.[2]

    Suzanne Powers
    Desert Ridge Portraits

    • David Sasson May 9, 2016 Reply

      It’s not funny that I’m writing this because some of the art we carry is made in China. We are facing competition just like other merchants online. In this article I’m explaining how we deal with this competition. Every retailer faces certain competitors, how you deal with this competition is up to you. I wish you great success in your business. If you have a follow-up question please don’t hesitate to post. Thanks, David Sasson

  14. Wayne Thorpe July 22, 2016 Reply

    This is outrageous in many ways. First, let’s clarify that the epacket rates posted by the U.S.P.S. are misleading. The Chinese government is getting the products to our west coast for free for the Chinese merchant. They only pay a fraction of the published rate which is very minimal to the U.S.P.S. Then there is the small matter of duties. Why are merchants who import from China, or anywhere else, and resell from within the U.S. charged inbound duty while these epacket packages come through without any duty charged ? Talk about an unlevel playing field. As an owner of an online business ( in business since 1971), I employ 18 people=all of whom make a living wage and pay taxes. Not for long if I am forced to compete directly with thousands of Chinese merchants mostly operating out of their apartments with very little overhead. This system is an outrageous attack on American businesses. It impacts etailors and big box stores alike. How could our own postal system allow this to happen ? And the impetus for setting this up was e-bay ? Good for e-bay I suppose but at the end of the day, it’s hurting our economy.

  15. Clara July 25, 2016 Reply

    Since 2015, my business has been going downhill, when it’s 2016 Jan USPS free raised overseas shipping to sky high, I lost 95% of my international customers. We totally lost our competitive advantage as a US sellers, not just talking about online retailers. It’s crazy that someone as a US decision maker actually made a decision to harm US sellers. Great now, all the money flow to China and what did US sellers have? nothing? I am not saying SWOT is a joke, but in this case, your pricing is actually higher than Chinese sellers a lot, SWOT is not going to do anything. Also, Chinese has a lot of people also know how to talk/ speak in English, so your SWOT analysis about US buyer wanting personal experience of someone speaking English just is not quite there. Unless someone makes a smart decision to make a fair deal from the postal, US sellers are going to suffer. The ecommerce leaders must be corrupted by Chinese businessmen, otherwise, this won’t happen.

    • John lathon November 15, 2016 Reply

      Clara you must have it correct because there simply cannot be another explanation when you follow the $, it would be interesting if someone could follow the $ and see WHO allowed this crap?

      who’s authority was this crap allowed under, do we have signatures on documents showing who allowed this crap into our system of governance?

      crap crap crap!

      I have a business selling large machines that need lots of repairs that is my only angle and even that’s getting pushed down in $ as these guys are setting up warehouses in US, UK, and AU !!!

      Someone needs to be dragged into town square and dealt with!

  16. Rob July 31, 2016 Reply

    Another case of our rulers favoring foreigners, and in this case the enemy, over Americans. And you wonder why Trump resonates?

  17. J Tempesta October 8, 2016 Reply

    According to a link I just found on Ask.com. It is done by the United Nations. It is called the Universal Postal Union (UPU). It was absorbed into the United Nations in the 20th Century and is Amended in a Congress every 4 or 5 yrs. I put the question Do we subsidize China Shipping Costs.Many links some not related. But a little ways down in the 1st column is a link and the Heading says United Nations is helping Subsidize China Shipping. That gives you the whole story.

  18. V G Abraham March 10, 2017 Reply

    I’m from India and am a seller on eBay India with the name Solartroniksonline. India with its huge population is a huge consumer market and a few years ago, eBay India also started some thing known as eBay global buy for it consumers in India. As a buyer I’ve tried to buy some goods from eBay India and realised that they are available from sellers on eBay global buy. Its costlier, but the system still works indicating that Indian consumers are ready to pay for good quality products from the US. The Chinese manufactured products are always suspect and that’s why many consumers are reluctant to buy them as compared to buying genuine and innovative products from the US.
    On the lines on eBay global buy from eBay india, it makes more sense for eBay.com or Amazon.com and other popular ecommerce sites in the US to start a separate section to buyers from India and to execute this operation, sellers from US must have an arrangement with a stockist in India to ship their goods locally from India and thus reduce their shipping costs and time delays. Someone like me having experience as a seller and understanding the value of fast shipping would be an asset in this operation for a good seller from the US. Not just wanting to promote myself, but this makes business sense to tap the Indian market.

  19. kat April 1, 2017 Reply

    Our own USA corporations had a hand in this. They took our jobs overseas, and now they have destroyed the US based e-commerce companies. They want it all, and they will have it all because we Americans are quite the dumb lot.

  20. Monroe Baldwin May 11, 2017 Reply

    It is my opinion that China Post is offering all of these manufacturers free shipping so the factories are not paying for any shipping at all. The country of China takes that as a loss in order to keep their manufacturing base alive and for competitive advantage. There is some renumeration agreement through the Postal Union where we get paid for taking the packets too the door of the customer. I think this amount is total weight difference in postal delivery between two countries.
    This seems like a modern-day chapter from Sun Tzu The Art of War