The idea of drone delivery sharply divides commentator opinion: some dismiss it as a mere publicity stunt while others consider it a game changer that will bring near instant product fulfillment to e-commerce, stripping traditional shops of their last major differentiator.
Here we paint a big picture of how we see the emergence of drone delivery.
Drone delivery entered mainstream media in late 2013. Around that time, drone delivery of e-commerce parcels was first demonstrated while, in parallel, drones successfully delivered medicine to remote areas. Since then numerous deliveries have been made, partnerships announced, and substantial sums invested (see as example Matternet and Zipline raising a total of $12.95m and $41m, respectively). Despite these developments however, the industry is still in its infancy.
The new prevalent strategy is to pivot towards commercial drones. The drones will be higher performance and potentially application-customized, leading to higher prices. This will hold true in the medium-term but there will be no escaping the ultimate fate: hardware platform commoditization. The rise of ‘prosumer’ drones—with prices already down close to the consumer end— attests to this.
Fleets to boost drone productivity?
Drone delivery faces critical challenges. Individual drones offer limited productivity compared to traditional means of delivery (consider a van delivering 150 parcels in an eight-hour shift). They can only carry small payloads, and battery technology limits their flight duration, constraining them to about a 30-minute radius of their base while further lowering their productivity due to the downtime needed for re-charging/re-loading.
The limited productivity, however, is not a showstopper. This is because fleet operation will compensate for poor individual drone productivity.
The unit cost of drones will be substantially lower than, say, a van, enabling the conversation of a few, highly-productive vehicles into many small drones with high productivity at the fleet level. This will require a further major reduction in hardware costs for commercial drones, but if the past is to be our guide, this will be inevitable.
As a general point, autonomous mobile robotic technology is causing a paradigm shift in the way we envisage many commercial vehicles.
Take an unrelated example: tractors in agriculture. Here, the traditional design objective has been to make the tractor bigger and faster to amplify the productivity of the driver. Autonomous mobility can upend this by converting a few, fast, heavy tractors into a fleet of many slow, small, driverless agrobots. This process has begun and drone delivery can be viewed as part of this same long-term trend.
Limited payload is also not a showstopper because, according to Amazon statistics, some 85 percent of packages weigh less than two-and-a-quarter kilograms. Furthermore, the decline in delivery costs and time for customers is changing purchasing habits: frequent orders of small items are replacing that big, infrequent order. This matches well to the strong points of drones.
Limited range is also not a showstopper even in suburban areas where customers do not live close to a distribution point. It will, however, mandate a gradual yet wholesale change in the location of warehouses, with more placed closer to end customers, or the use of large mobile drone carrier vans. The former is already happening in the background, while the latter has also been demonstrated at the proof-of-concept level.
Will safety concerns stop the show?
The most critical challenge is safety. This can indeed be a showstopper and will almost certainly limit the market scope to sparsely populated areas. Regulatory frameworks are already being relaxed for commercial drones, but still rightly continue to put brakes on large-scale deployment of beyond-line-of-sight commercial drones. Indeed, there are many accidents waiting to happen: mechanical failure causing crash, software failure leading to early release of payloads, and so on.
Safety concerns will be a major damping factor. Together with technology limitations they will limit the market scope. Indeed, our market roadmap suggests that drones will initially be constrained only to deliveries to remote areas. Technology evolution will enable them to next diffuse towards deliveries of urgent vital items, and then towards places with low, sprawled-out population densities. High-density urban environments will remain largely out-of-reach.
Our forecast model and technology roadmaps show that delivery drone sales will remain limited to a few hundred of units sales per year between now and 2027/28. Demand will then start to take off, reaching sales volumes exceeding fifty thousand units per year by 2038. Thanks to accumulation effects, we therefore expect to see major drone delivery fleets in operation within our twenty-year forecast period.
Drone delivery is still in its infancy. Its short-term potential, we find, has been exaggerated. However, the technology has a long-term future, particularly within the context of the bigger trend to automate as much as of the logistics chain as possible. Its realization will require patient investment in R&D and trials, constant negotiation with regulators, and wholesale re-organization of distribution points and practices.
This technology will be a loss-maker for its main users for years. The ultimate grand prize of instant fulfillment will, however, drive this industry forward. Players will have no choice but to continue to sink money into distribution technology/services, viewing them as marketing expenses in their battle for market share against each other as well as against traditional stores. Despite their ultimate rise however, drone delivery will remain only a small part of the much bigger commercial drone story.
More information can be found in: “Mobile Robots and Drones in Material Handling and Logistics 2017-2037”.