Drone Delivery System

Description

Delivery trucks for parcels are a noticeable part of urban traffic that can be reduced by implementing a drone delivery system. As the market for deliveries is significantly and steadily growing, especially due to the increasing options in online shopping, this becomes even more relevant. Likewise, the delivery market slowly transforms from a mainly B2B market to a B2C market. These developments lead to the increasing importance of the so called ‘last mile’ – the delivery from the closest transportation hub to the final destination. One opportunity to improve the last mile delivery are drones. Autonomous drones can significantly accelerate delivery times and reduce the human costs associated with the delivery.

Operating Models

Modes of operation:

• Central distribution centres: All drones depart from a central distribution centre delivering on parcel at the time. For recipients out of the range or too heavy for the drones, traditional ways of delivery are used (b). The partly use of traditional delivery can be optimizes as recipients on the way of the traditional delivery truck might be served more efficiently by the truck than by drones (c). To compare the different delivery modes, (a) shows a traditional delivery system via truck. (Murray, Chase C.; Chu, Amanda G., 2015)

• Delivery truck as drone base: Especially in cases where the distribution centre is located far from the customers, an alternative is to pair the drone delivery system with a traditional delivery truck (b). The delivery truck transports all the parcels and the drones from the distribution centre closer to the recipients. Depending on the optimal route of the truck, part of the parcels are delivered via drones. The drones start and land on the truck. The truck can change its position while the drone delivers the parcel. The driver needs to load packages, replace batteries, and to recover the drones to be secured aboard the truck while in transit. (Murray, Chase C.; Chu, Amanda G., 2015)

Cost advantage:

Due to the Business Insider drone deliveries will translate to instant cost savings, part of which will be passed on to consumers. Mainly in developed countries, it costs far less to operate a fleet of unmanned aerial vehicles than it does a fleet of ground vehicles. Due to a calculation conducted by Raffaello D'Andrea, who cofounded Kiva Systems (the warehouse robots used by Amazon), it costs 10 cents to deliver a 2 g package over almost 10 km using a drone. That's far cheaper than the $2 to $8 per package that it costs Amazon today using ground transportation for deliveries over this "last mile."

Passing the achieved cost savings in delivery to the customers, can increase the market share of an e-commerce company significantly, as "higher than expected shipping costs" are the top reason why consumers abandon a shopping cart online. (Smith, 2015)

The graphic below shows the delivery costs per shipment via drone. The calculation bases on research of the ivey business review on Amazon’s delivery system. The calculated costs vary depending on the market share of drone delivery / the year and the investment costs per drone. (Menon, Prashon, 2013 – how many drones does amazon need?)

For such a big e-commerce company as Amazon and less than $500 investment costs per drone all calculated costs are far below the traditional shipping costs, which are $ 2.1 in average.

Pilot projects: Currently Amazon is running a local trial Amazon Prime Air in Cambridge, England and DHL experiments on Drone Delivery Systems in Germany. DHL uses different drones depending on the local environment. The following image shows the technical details of the three drones which are currently used.

VIDEO: www.edge-cdn.net/video_1046346

Market Potential

Market Overview:

The drone delivery system can be part of the parcel delivery market. The total global cost of parcel delivery, excluding pickup, line-haul, and sorting, amounts to approximately EUR 70 billion. Whereas, China, Germany, and the United States account more than 40 percent of the market. However, the market is not just large, it is also highly dynamic. The grow rates differ in different countries. The current major markets, which are mainly developed countries such as Germany or the US, have growth rates ranging between 7 and 10 percent. Developing markets such as India otherwise reach growth rates of almost 300 percent. (McKinsey, 2016)

Even if drones can only handle parts or niches of the parcel delivery market, as discussed below, the global market potential is still significant. The market received a lot of attention from the start-up scene. The graphic below shows 308 of these start-ups clustered the type of delivery they focus on.

The graphic shows that most start-ups work on solutions for food delivery. A lot of investors are also interested in drone delivery systems - from 2011 to 2016 for example, young companies in this market have attracted funding just short of USD 10 billion. (McKinsey, 2016)

Possible Target groups:

• Premium fast delivery: According to a large-scale survey, McKinsey conducted in China, Germany, and the US with a total of 4,700 respondents (1,500+ in each of the three countries), 25 percent of the customers would pay an additional fee, up to 3 €, if their parcel is delivered at the same day. Anyway, 70 percent of the people that contributed to the study would choose the cheapest option. (McKinsey, 2016)
• Grocery delivery: The grocery sector is the only sector within the survey named above where more than 25 percent of the customers are willing to pay additional fees for faster delivery. On the other hand, some people also said that especially in e-groceries they still want crates to be carried up to their apartments and returns to be handled directly. (McKinsey, 2016)
• Medical products: Such as groceries medicine is also a product where the delivery time can be of high importance. One example for an already implemented medical delivery system via drones is Zipline in Rawanda, where blood is delivered to rural hospitals.
• Small and private buildings: As in high rise or business building several parcels can be delivered at once, the cost advantage of the parcel delivery system decreases. Due to calculations based on Research of McKinsey, the break-even point between traditional and drone delivers is reached at an average drop factor of 10 to 15 parcels per location. For this calculation personnel cost have been estimated as 20 Euro per hour. (McKinsey, 2016)
• Areas with high labour costs: Due to McKinsey’s calculations drones deliver a cost benefit mainly in avoiding personal costs. Therefore, they can create a cost advantage compared to the traditional delivery system in countries with labor costs above 10 to 12 Euro per hour. That is the case in more or less the entire developed world. (McKinsey, 2016)

Requirements:

• Weight of the parcel: Currently, drones can only deliver parcels up to 5 kg. (McKinsey, 2016) Amazon indicates that 86% of its deliveries weigh less than this restriction.
• Length of delivery route: Instant service can only be economically viable if the right product is available in the proximity of the recipient, which excludes many rural areas from this service. For commercial products, only for distances beneath 5 to 10 km the additional costs are accepted. (McKinsey, 2016) The Prime Air drone, for example, has a range of 10 miles (Gross, 2013). Thus, the distribution centre needs to be close to the recipients.

Technical issues:

• Currently, most drones rely on GPS, which has a limited accuracy of about 10 m without corrective technologies (Arnold and Zandbergen, 2011).
• Due to the limited length of the delivery routes, the operation in urban areas are an efficient area for the drone delivery system. A main problem that occurs with GPS signals in urban areas, is the risk to lose signal in so called urban canyons. As such, there is increased interest in localization and navigation approaches that enable drones to function in GPS-denied environments (Clark and Bevly, 2008; Marais et al., 2014)
• Another risk of navigating drones is the risk of hijacking (Humphreys, 2012; Faughnan et al., 2013)
• The batteries of the drones currently limit the length of the delivery routes massively (Gross, 2013)

Environmental and Social Issues:

• Heavy rain resilient and withstand damage from bad weather and animals (Murray, Chase C.; Chu, Amanda G., 2015)
• Noise pollution (Murray, Chase C.; Chu, Amanda G., 2015)
• Shooting down of drones (Gross, 2013)

Supporting Factors

• IT infrastructure: to guide the drones through the daily traffic
• GPS accuracy

Legal Requirements

EU: 

• No legally binding regulation yet. A regulation has been under development by the European Aviation Safety Agency (EASA) since 29/11/17.
• Currently, drone operators must be registered if they operate drones which can transfer more than 80 Joules of kinetic energy upon impact with a person. 
• First draft here: data.consilium.europa.eu/doc/document/ST-5218-2018-INIT/en/pdf
• Intention: ensure safety, security, privacy and the protection of personal data

USA:

• States, Countries and Cities mostly have additional own regulations.
• FAA’s Part 333 Exemption for commercial drone operation:
  • Operating beyond sight line possible, but not with other people’s property.
  • This is only granted for certificated pilots or if you stay 500 ft away from non-participating people.
• FAA’s Part 107 drone regulation: 
  • Drones carrying mail are not allowed to cross state or national borders.
  • Drones must be in line sight of the pilot.
  • A remote pilot is necessary.
  • A remote pilot can only operate one drone at a time.
  • The drones cannot be operated from a moving vehicle.
  • No operating near airports (most parts of a city excluded!).