Advantages in Cost are Actually not Clear, but will Drones Do Make Sense for Some Deliveries

There has been quite a bit of hype and investment since Amazon CEO Jeff Bezos in effect launched the drone delivery era in an interview with TV program 60 minutes in 2013 announcing the company's plans to use drones.

While many companies beyond Amazon continue to make major investments in drone technology, for several years what many saw as overly strict regulations by the US Federal Aviation Administration (FAA) even on drone testing, such as a requirement that drone operators maintain line of sight with drones making deliveries, held the sector back.

Supply Chain Digest Says... While it may seem obvious that drones would save costs by using more efficient, direct routes than standard ground delivery, that is also not so clear. What do you say? Click here to send us your comments Click here to see reader feedback

That has recently changed, with the FAA allowing 10 drone delivery tests, and more recently, some full blown (if limited) commercial deliveries.

So is the drone era soon to be upon us, offering faster and more environmentally friendly deliveries? Not so fast, says Matthias Winkenbach, director of the Megacity Logistics Lab at the Massachusetts Institute of Technology, in a recent guest column in the Wall Street Journal.

"This [drone] euphoria is largely based on assumptions that drones inevitably deliver better customer service at lower costs with a better environmental footprint than conventional delivery by a driver in a parcel van," Winkenbach wrote, adding "These claims are little more than flights of fancy that cloud a more realistic assessment of the potential for the use of drones in logistics."

What's the reality?

Winkenbach says that are misconceptions around the business case for drone delivery in three main areas: (1) the cost of labor; (2) the cost of propulsion; and (3) route efficiency in terms of distance and time traveled per package.

To succeed, drone delivery must have a substantial advantage in at least one of these dimensions to become commercially viable.

With regards to labor, Winkenbach notes that for now, commercial drone deliveries for urban areas require human operators because certification for units to operate fully autonomously in densely populated zones is still at best several years away.

One alternative, Winkenbach says, is actually not unmanned but indeed manned air vehicles capable of vertical take-off and landing. But this would be a very costly solution, and the size of the aircraft would likely cause problems.

So the labor cost advantage of drones is far from clear.

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The battery-powered drones also may not have an advantage in terms of fuel costs, Winkenbach says.

"In fact, drone payloads are particularly limited due to the weight of the batteries that keep the machines in the air," Winkenbach notes, adding that "short battery lifespans due to frequent recharging add significant costs that are easily overlooked by drone enthusiasts."

And while it may seem obvious that drones would save costs by using more efficient, direct routes than standard ground delivery, that is also not so clear.

"It's difficult to squeeze significant additional efficiencies out of today's highly optimized, dense urban delivery routes, particularly when multiple packages can be handled at each stop" and which therefore might require multiple drone deliveries, Winkenbach observes.

Winkenbach does see one area where drones could offer real advantages: companies with tight delivery-time windows or accessibility restrictions. The key to unlocking substantial efficiency gains, Winkenbaclh says, is using drones to serve these customers differently than they are managed currently.

He says that moving some of those customers to drone deliveries offers the biggest potential for raising the overall efficiency of urban fulfillment. While the cost of using drones for these companies may be high, the overall route combining trucks and drones could decline.

In the end, Winkenbach says that the industry needs to focus on three priorities to make drone-based deliveries viable. Those are:

(1) Concentrate on middle-mile not last mile applications with vehicle systems operated fully or partly by humans that can gain certification relatively quickly.

(2) Devote significant resources to viable energy storage and propulsion systems for drone delivery. In the absence of breakthroughs in battery power, consider alternatives such as biofuel and hybrid systems.

(3) Focus on applications where low cost of delivery is not the top priority or where few highly constrained customers have a disproportionate effect on overall cost.

"Only economic and regulatory reality - rather than hype fueled by the venture-capital world - will determine whether it is commercially viable," Winkenbach concludes.

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