Drone Delivery: The Future of Last Mile Logistics
This research was conducted in the summer of 2022. Today, current market headwinds suggest a decrease in overall consumer spending for the near future, a change which will inevitably impact retailer profits. In prior times like these, brands have sought a variety of ways to reduce costs. One meaningful way to do so is by adopting new technologies to improve their underlying business. Our research shows that the current state of last mile logistics is riddled with inefficiencies, despite benefiting from staggering growth. This industry is ripe for disruption. Through integrating novel technologies, last mile operators can expect both operational and cost benefits, two areas of immediate concern given today’s market climate. In that context, we believe drone delivery represents both a short term and long term opportunity: providing much needed cost savings today and optimizing the last mile delivery industry for the future.
When buying something online, shoppers typically want it immediately. Anything more than same-day or two-day delivery, and questions emerge about the entire purchase. How badly is this needed? Are there alternatives available sooner? This is the new normal for digital retail.
If the last few years have taught us anything, it’s that many consumers now expect front door delivery done as quickly as possible. The days of shipping times with week plus deliveries are long gone. Due to the widespread success of Amazon Prime, consumers are now conditioned to believe delivery speed should be a top consideration for every online purchase they make. Fortunately, most of the United States has access to quick delivery options - but is this level of expectation really sustainable for businesses and customers alike?
Drone delivery may provide an answer.
Current State of Drone Delivery
Consider this scenario:
An ingredient for a dinner recipe was forgotten and there is no way to both go to the store and complete the dish on time. Today, there are two options. One is a frantic race to the grocery store for the forgotten item, putting the cooking on hold. Or the other is launching a grocery app and paying an express delivery fee, with the missing item arriving a few hours later. In either scenario, the final dinner time is delayed. But what if that missing ingredient could have been delivered to your doorstep within the half-hour? In the future, drones will make that a reality.
Tech Giants Leading Adoption
In 2014, Alphabet’s R&D department announced Project Wing, a company initiative to develop technologies around drone based delivery. In 2018, Alphabet officially made Wing its own standalone business, with initial market entry into Australia and Finland. Two years later the company expanded to include the United States and, as of this month, has completed over 200,000 small package deliveries via air.
At the 2019 re:MARS conference, Amazon stated that they plan to launch a drone delivery service that could fulfill consumers’ orders within the hour. Known as Prime Air, this service would not only complement but also compete with Amazon’s pre-existing Prime, two-day shipping and Prime Now, two-hour delivery service. Whereas Amazon’s current shipment options can only guarantee delivery within a four-hour window, the company claims Prime Air will be able to do so within thirty minutes. This month, June 2022, the company announced it had selected Lockeford, CA, a suburb of Sacramento, as its pilot market, with the intention of beginning deliveries by end of year.
Regulatory Approval of Drone Delivery
Across the globe, countries have begun adopting pro-drone delivery regulations for a variety of use cases:
Japan & China - for general parcel shipment and delivery
Rwanda & Ghana - for remote area medical supply drops
Australia & Vanuatu - for food, personal, and home care deliveries
Finland, Iceland, Sweden - for food, medicines, and retail item deliveries
US & Canada - for smaller parcel deliveries
While Asian and North American countries are distinctly leading the pack for broader government approval, they too have shown some hesitation in full out adoption of last mile drone delivery. However, recently proposed regulations in the United States point to a shift in sentiment.
At the beginning of this year the Federal Aviation Administration (FAA) announced a drone tracking project known as UTM Field Test (UFT). Focused solely on unmanned aerial vehicles flying at levels under 400 feet in the air, the insights gained from UFT are intended to guide future FAA operations for monitoring low altitude drones in US airspace. In practice, the project will conduct drone test flights in true-to-life scenarios under varying conditions where drones could plausibly be used (ie. cityscapes, night flights, over civilians, etc.).
Months later, on March 10th, Congress officially formed the Beyond Visual Line of Sight Aviation Rulemaking Committee (BVLOS ARC), tasked with proposing rules for autonomous drones. In its first published report as a committee, a weighty 391 page document, the BLVOS ARC outlined some guiding principles around autonomous drone operations and ways to mitigate safety concerns.
Shortly following that report, the FAA granted approval of ten BVLOS authorizations for an automated docked drone system known as Scout. The approval was the first of its kind to allow operation of autonomous drone bases, operated entirely without human oversight on location. From that approval, Ondas Holdings, the owner of Scout, was encouraged to accelerate its commercial drone footprint across six states (North Dakota, Louisiana, New Mexico, Nevada, California, and South Carolina) and autonomously service the delivery demands of large enterprise clients like Chevron and ConocoPhillips.
Customer Opinions for Drone Delivery
In late 2021, Statista released survey results for customer opinions regarding autonomous
package delivery. Across four countries and 1,000+ participants, the survey showed that a sizable portion of consumers were not only open to, but would actually choose, drone delivery over conventional shipping. Most notably, within the US and China roughly a quarter of people surveyed stated drones would be a preferred delivery method for them in the future.
Within the US, that acceptance is just beginning to play out. DroneUp, a Virginia based startup, just announced last month its expansion plans to distribute to 34 new sites on behalf of Walmart. Covering several states (Virginia, Texas, Arizona, Arkansas, Florida, and Utah) and over four million households, the company anticipates its future drone use to cover all forms of package delivery, including areas like first response and public safety.
As consumers gain greater confidence in drone technology, more use cases like these are bound to pop up. While drones today are largely seen as a novelty, greater adoption of drone delivery by large retailers is sure to shift public opinion. Initial adoption is obviously key, but once drone shipping technology is in place, the process is incredibly sticky for all affected parties. For retailers, the cost savings can be upwards of 90% versus conventional car-based services. For customers, there's currently no faster way to get their purchases delivered.
How Drones Could Solve the World’s Challenges
For most underdeveloped nations, poor infrastructure poses an insurmountable obstacle for last mile delivery. In rural areas around Asia and Africa, the WorldBank estimates that over 174 million people lack access to good roads. While some countries in these regions are allocating substantial capital to improve these looming infrastructure issues, some authorities still claim that it could take up to fifty years for improved road access to catch up with demand. That multi decade lag presents a compelling problem to solve: millions of new potential customers for retailers to target, but no way to physically get to them. Drones may be a solution.
Although developing nations account for the largest amount of infrastructure concern, their first world peers are not immune. In its most recent report card, the American Society of Civil Engineers (ASCE) gave the United State’s existing roadways a “D” grade. Within that report, the ASCE highlighted that 40% of American roadways are in poor or mediocre condition. Moreover, it estimated that the impact of degraded roadways results in, on average, $1,000 of wasted time and fuel for each motorist every year. With expectations that last mile services will add 36% more delivery vehicles to roads, failing US infrastructure will equate to millions of dollars of additional cost to consider in the overall shipping equation. Implementing drone delivery does away with those considerations entirely.
Last Mile Pain Points
Today, issues with last mile delivery order fulfillment can be boiled down to three major challenge categories: high costs, poor efficiencies, and failures/delays. All three of these pain points can be solved, or at minimum improved, by implementing drone deliveries.
Given the complexity around last mile delivery, existing market players have adopted costly strategies to meet demand. To build reliable and robust operations, operators are required to own or contract a sizable fleet of vehicles. Subsequently, each of those vehicles requires fuel, insurance, and regular maintenance. In addition, to drive those vehicles, last mile operators are then required to hire a workforce (either permanent or hourly) and expense the wage and benefits costs that come with it. Finally, these businesses then pay for route optimization and delivery logistics software to guide their workers. The combination of all of these costs can create a significant burden on last mile businesses, eroding away at profit they may have otherwise been entitled to. Drone adoption for last mile deliveries can eliminate nearly all of these transportation costs: reducing headcount, software, maintenance, fuel, and insurance.
To complete deliveries today, last mile operators rely entirely on streetways and roads. Often, these preexisting channels are not the most direct routes to a final destination, and can be widely unpredictable depending on time of day and traffic conditions. Especially within cities, route optimization can be incredibly intricate and difficult to master given how bounded vehicle travel is with densely populated areas (i.e. one-way streets, limits on vehicle size, etc.). However, while these challenges apply to nearly all delivery ground fleets, they do not exist for last mile drone delivery. Unlike traditional vehicles, drones are not limited to existing infrastructure to complete routes. Having the ability to hover above physical obstacles that otherwise would inhibit ground delivery, drone operators can freely maneuver wherever they need. This freedom provides drone deliverers a massive efficiency bump on their ground competitors. Utilizing open airways as opposed to predefined paths, drone operators can find the most direct and efficient route for every package delivery. As a result, packages can be delivered at greater speeds and in greater volumes.
In 2021 the United States Postal Service (USPS) estimated that more than 20% of first class packages were delivered late. To make matters worse, during April of this year USPS announced it would substantially reduce reliance on air transport in favor of ground transport, a change it forecasted would extend shipping times one-to-two extra days on roughly ⅓ of all future package deliveries. While the transition away from air transport is financially motivated, and largely an attempt for USPS to become profitable for the first time in decades, the shift towards a longer delivery strategy is at odds with consumer expectations. Implementing a drone solution could help reduce that extended delivery window by providing quicker turnaround for the last mile.
Sustainability is one of the biggest issues facing packaging and shipping companies today. Nearly every element of the current packaging process has negative impacts on the environment: packaging peanuts, cardboard boxes, and plastic casings all traditionally have one time use and then are thrown away. Shipping is no better, with last mile deliveries projected to contribute as high as 20% of city wide carbon dioxide emissions by the next decade.
The current process clearly isn’t sustainable, but drone deliveries may be a cure. A study by Gaia Consulting suggests that by 2030, drone delivery could lead to a reduction in eleven million delivery kilometers annually,
decreasing both the overall amount of packaging materials required and emissions produced during deliveries. As an added benefit, the introduction of drones would also reduce traffic congestion, eliminating some of the need for parcel trucks on the road.
The current trend suggests that last mile delivery isn’t going away, but to do it well we’ll likely have to take to the air. As future cities become more densely populated there will be greater concern around how shipments are fulfilled. Existing infrastructure, like streets and roads, alone will be unable to meet the greater demand. Leveraging technology like drones will be one of only a few viable paths to get customers their packages as quickly as they expect them.
Startups Powering Drone Delivery
Multiple startups have developed last mile drone delivery technologies, both domestically and internationally, with anticipation that regulatory bodies will eventually level-set with demand. Listed below are some of the most notable (US based), with the greatest progress made:
Founded in 2019 and based in Atlanta, Silicon Road Ventures' mission is to build a community and accelerate innovation taking place across the commerce tech category. We invest in startups across North America ranging from Seed to Series A driving innovation in e-commerce, retail and CPG.
If you’re a founder or investor interested in funding your drone delivery or last mile solution, reach out at firstname.lastname@example.org or comment below.
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