By James Dunnigan, Marketing Programs Intern, Oracle
The increasing demand for contactless deliveries has given the use of drones to deliver packages a strong boost. Did you know that there are over 20,000 drones carrying out retail deliveries today? There are also over 500,000 drones registered for commercial use with the Federal Aviation Administration (FAA), many of which are used in different stages of logistics. A recent MarketsandMarkets report indicates that the drone package delivery market is expected to grow from $528 million in 2020 to $39 billion in 2030 with a CAGR of 53.8%. Gartner estimates that drone delivery will not only reduce last mile delivery costs by 70%, it will also make the delivery process more energy efficient.
Key market players in drone deliveries
Some of the leading drone companies competing in the supply chain space include familiar logistics companies. Alphabet (Wing), Amazon (Prime Air), FedEx (Wing partnership), DHL (Parcelcopter), and UPS (Flight Forward) are all developing drone programs focused on last mile delivery. These companies concentrate on smaller packages in the under 5lb range for now, while Walmart is taking a slightly different approach by partnering with other drone companies such as Flytrex and Zipline, who are currently doing pilot programs for deliveries. In other countries where regulations are less strict, Zipline is delivering medical supplies to remote areas. Boeing and Drone Delivery Canada are focusing on larger cargo, the latter having a cargo capacity of up to 396lbs and a maximum distance of 124 miles. A common application for larger cargo drones is depot-to-depot, which is less regulated. Drone companies are also being used for different levels of surveillance, including site surveys and raw material discovery. These applications are more cost-effective, as well as offer greater worker safety for those surveying remote areas.
Recent legal developments
The FAA has granted several companies a waiver that allows drone operation beyond line of sight. This is a major milestone for all kinds of drone operations, and has allowed some companies to begin pilot programs that conduct real-time deliveries in the United States. Even though these companies are offering drone delivery to limited customers, there are still several regulatory issues that need to be addressed in order to scale. For one, pilots are currently only allowed to operate one drone at a time, which means no automation can happen just yet. In the future, it will be much more cost effective to use artificial intelligence (AI) to operate dozens of drones while one person monitors the system. For this to happen the company is going to have to conduct tests for the FAA proving the safety of the technology. They will also need to address private property, which extends 400 feet above the ground. This is easy enough for the customer who requested the delivery, but it effectively limits flying over roads since drones are not allowed to fly over 400 feet where aircrafts operate.
Logistics and fulfillment implications
Many companies have been using drones for last mile delivery, operating out of delivery trucks. This method uses infrastructure that already exists, and simply makes it more efficient. To be able to scale, additional infrastructure upgrades must be implemented, including setting up additional warehouses or “beehives” for the drones to operate out of. For retail stores this could simply mean operating out of the back lot or loading dock, or on the roof. For delivery companies, this could potentially look like franchising out the beehives to third party logistics (3PL) companies. Cloud-based warehouse management solutions can provide rapid deployment of additional warehouses as needed. Currently, drone delivery is only able to work with fast moving consumer goods, such as coffee and groceries. If products with generally lower inventory turnovers start getting delivered in 30 minutes or less, there would simply be empty warehouse shelves which would lead to either goods taking up shelf space in a high-volume warehouse or getting delivered too quickly and having an empty shelf. Companies need to develop a robust replenishment schedule using more flexible demand planning solutions in order to accommodate this new way of fulfillment. Along with shorter delivery times will come an increased strain on the entire supply chain. Shipping companies have seen a record number of shipping containers lost at sea due to increased purchases during COVID. According to Bloomberg, many safety measures are being bypassed in order to meet demand, and 2021 is on pace to lose even more shipping containers than 2020.
While most drone companies are relying on in-house software, there are also start-ups who are partnering with 3PLs to implement drone delivery services. The introduction and increasing use of drones for last mile deliveries will impact a company’s supply chain, from demand and supply planning to transportation and warehousing. This new method of fulfillment will require a flexible and adaptive supply chain management solution.