The global e-commerce market is expected to reach $4.31 trillion in 2025, and Statista Market Insights predicts e-commerce to reach $5.89 trillion by 2029.
One supply chain strategy on the rise is dropshipping. Shopify defines dropshipping as a business model where items bought from an online store are shipped directly to customers by the manufacturer, rather than the retailer itself.
For example, when you order a Bose bluetooth speaker from Brookstone, your order doesn’t come from a Brookstone warehouse. Instead, Brookstone forwards the order to Bose, who then ships the speaker directly to you. Similarly, many companies sell products under their own name that are white-label generic products manufactured by another company.
Dropshipping is not new, but is becoming popular among startups with limited capital, and those desiring to avoid the price of high tariffs. Domestic suppliers offer low overhead costs to online retailers by eliminating inventory costs and allow a more diversified product offering. E-commerce platforms like Shopify offer simple tools that connect manufacturers and online retailers who profit from social media advertising and finalizing the sale to the end consumer.
How Tariffs Impact Dropshippers
An analysis by dropshipping platform TopDawg highlights that shipments from China and Hong Kong face the recent elimination of the de minimis exception (imports valued $800 or less), and new duty rates on postal shipments, where purchasers must choose either a 120% ad valorem duty or a $200 per-item fee.
In other words, when importing an item valued at $100, you either pay a flat $200 fee, or a duty fee of $120. A previously affordable item may now be more expensive than a luxury alternative. This is especially true when purchasers don’t have control over shipping methods, also resulting in inconsistent pricing. Dropshippers must either absorb additional tariffs or pass them on to their customers — neither is an attractive proposition.
Collaboration Is Key
A typical response to mitigate tariff costs is to negotiate lower costs. While this can offer short-term relief, a more effective longer-term approach is using collaboration.
As Shannon Whitt, Head of Compliance and Trade Programs at Future Forwarding Company in Atlanta, shared in an interview, “Collaborating with suppliers is no longer a nice thing to do. It is becoming essential in order to mitigate tariffs.”
Whitt suggests working with supply chain partners to rethink how they can take advantage of the U.S. Custom’s First Sale methodology to reduce duty liability. The First Sale rule allows duties and taxes to be paid on the first sale invoice between the manufacturer and a middleman, instead of the higher second sale price.
Nulogy CEO, Jason Tham, agrees that supplier collaboration can be a great source of creative solutions. Said Tham in a recent interview, “Today’s tariff troubles are just another reminder of why it is so important for supply chain partners to collaborate.” One creative solution Tham recommends is jointly funding solutions, such as engaging an expert in trade compliance to help the parties optimize transportation and tariff costs.
Transparency Is An Enabler To Collaboration
Transparent communication with supply chain partners is a key enabler for finding supply chain solutions that optimize product flow and minimize disruptions.
Whitt notes that with some tariffs as high as 50-85% on iron, steel and copper raw materials, changing business partners without detailed research could lead to additional unexpected tariff implications. She added, “Transparent discussions with suppliers shed light on the complexity of where components and subcomponents are manufactured.”
One example of this transparency is understanding the breakdown of components in a finished good. Goods whose parts originate from different countries are considered to originate from the country where the finished part underwent its last substantial transformation, with a transformation defined as:
- Resulting in a new and different product
- Being different from its components
- Having a distinctive name, character or use
Hubbell Power Systems, a manufacturer of products used in the utility and energy sector, offers a good example of how it is trying to be more transparent with its customers regarding how tariffs are impacting their costs, detailing how the various components of one of their finished goods products is impacted by tariffs. By understanding the components and their tariffs, Hubbell can work with its customers to change out component parts that could reduce the impact of tariffs.
The Bottom Line
The bottom line? Collaborating with suppliers and compliance experts can be a good way to mitigate price increases due to tariffs for dropshippers and others.
Richelle Bishoff, Vice President of Procurement for Border States, summed up her advice in an email interview: “When vendors, distributors and customers work as true partners, with aligned goals and open lines of communication, we’re all better positioned to make effective, scalable decisions that support building a more resilient supply chain.”