Commerce

Why We're Still a Long Way Away From Drone Delivery for E-Commerce

MEDICI

A few days ago, 7-Eleven and a drone startup called Flirtey announced that they had made an unprecedented drone delivery of a Slurpee and a few other sundries to a residence in Reno, Nevada and people lost their minds over this ‘historic’ event. This delivery was supposedly the first time a US customer (“Michael”) received a package at home via a drone.

But let's take a closer look at the drone delivery business and understand if this particular milestone is a real step toward wider adoption or more of a symbolic event.

The track record of Flirtey pilots looks legitimate

Admittedly, 7-Eleven delivery is not the first time Flirtey successfully delivered packages via drones. In 2014, the Nevada-based startup partnered with the University of Nevada, Reno, to test the startup's aerial robots at the university's indoor flight facilities. At that time, Flirtey had already conducted over 100 successful deliveries of books during its test phase in Sydney with the textbook company Zookal, with which the startup partnered at the end of 2013.

In mid-2015, Flirtey also performed federally-approved drone delivery in a rural area by dropping off emergency supplies to a health clinic in Virginia.

The bottom line: Flirtey appears to have a legitimate track record of successful deliveries, and the Reno 7-Eleven experiment further supports that history. However, let's look at the bigger picture as Flirtey is not the only company trying to push the drone delivery business to the masses.

The challenges with drone delivery

Drone delivery as retailers envision it, is not permitted by law in the US

Amazon has been fighting its way into drone delivery since at least 2013. After a lengthy wait for testing approval from FAA (amid ‘threats’ to take it outside the US which it did this year), Amazon was finally granted an experimental airworthiness certificate for its drone design in addition to permission for Amazon to perform tests and fly its drones only during the day, within 400 feet of the ground and within sight of an operator who has a traditional pilot’s license.

Although Bezos envisioned Amazon pioneering drone delivery for packages weighing as much as five pounds within a 10-mile radius, FAA proposed rules that would not allow such a delivery because the rules require the unmanned copter to be at a sight of the operator at all times.

“At all times the small unmanned aircraft must remain close enough to the remote pilot in command and the person manipulating the flight controls of the small UAS for those people to be capable of seeing the aircraft with vision unaided by any device other than corrective lenses,” FAA rules, basically cutting out an option of drone delivery at all. Furthermore, there isn’t any clear legislation around how much airspace above one’s property a private landowner actually has. Some estimates have it at 500 feet, which would mean that efficient drone paths would – if compliant with the FAA regulations – trespass on the properties of many landowners. Perhaps drones will ultimately only be allowed to follow public roadways, but their benefit will then be limited to bypassing traffic during congested times.

The infrastructure is not there yet

Drone delivery requires infrastructure development with significant investments. For example, plausible estimates say Amazon would need to spend at least $130 million on infrastructure for its Prime Air program. Furthermore, drone deliveries need to account for everything from curious family pets to sprinkler systems to understanding homeowner borders. These aren’t insurmountable, but the truth is that the types of deliveries for which drones are best suited – small packages delivered to rural environments – are a small percent of the total package delivery.

Companies with a rich store footprint and a lot of free standing stores like Starbucks may be well-positioned to be a repository of drone deliveries in the future.

The cost of delivery

Dan Wang, shipping, logistics and global trade expert, recently shared the economics of drone delivery compared to UPS delivery. As Wand explains, $12.92 is the price UPS charges to consumers for an express package delivery, but its actual marginal cost of delivering one more package along a route they are delivering to already is probably closer to $2. Estimates for drone delivery range wildly. The smallest estimates are around 88 cents per delivery and the highest are $10–$17. This doesn’t even take into account any fees or additional taxes that towns and communities may want to assess on drone deliveries, or if the lifespan of a drone is short.

In short, the current case against drone delivery is stronger than the case for it. In the next decade, things will undoubtedly change. We may even have a Hyperloop by then which would force the progress of rapid logistics even more. But in the interim, fast deliveries are the result of a lot of humans hustling and working around the clock.

MEDICI Team

MEDICI

MEDICI Team is a group of content writers, bloggers, journalists, researchers, and editors from the MEDICI team who collaborate to create FinTech insights.

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