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UPS tests drone delivery system (UPS)
BI Intelligence
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On Monday, UPS tested a drone delivery system developed by Workhorse Group, an Ohio-based company that builds electric vehicles for logistics firms, Retail Dive reports.
Developed in early 2016, the eight-rotor delivery drone, called HorseFly UAV, can carry packages weighing up to 10 pounds and fly autonomously for 30 minutes.
The drone recharges while docking on the roof of an electric delivery vehicle. While it's docked, UPS drivers can load packages into the drone and then confirm its flight path through the truck’s dashboard. In its first such test, UPS successfully used the drone to deliver a shipment to a customer's home in Lithia, Florida.
Drone delivery could offer a few key benefits for UPS:
Drone delivery may help lower costs, specifically in rural locations where cars have to drive miles between individual deliveries. UPS states reducing driving distance by only one mile per day for each driver could save the company up to $50 million in a year.
UPS wants to lower prices to stay ahead of potential competition from Amazon, which has been testing its own delivery drones in the UK. Amazon says drone delivery is a key part of its strategy to lower delivery costs, and its efforts in this space could allow it to compete directly with UPS.
Partnering with Workhorse Group to launch drone delivery from its trucks could be a cheap way for UPS to integrate drone delivery into its operations. In comparison, Amazon is running its tests in the UK with a fulfillment center specifically designed to facilitate drone delivery. If Amazon had to retrofit its existing fulfillment centers to allow for delivery by drones, it would likely be much more expensive and time-consuming than UPS’ approach.
Drone delivery still faces significant regulatory hurdles in the US, however. The FAA prohibits all commercial drones from flying beyond the sight of their pilots. In compliance with this rule, UPS' test took place within sight of the delivery driver. However, the rule would severely limit the ability to scale any commercial drone delivery operation. Last year, Congress ordered the FAA to create new regulations that would allow for commercial drone delivery by 2018, but a recent executive order by the Trump administration raised doubts about whether the FAA will implement such rules. Without new drone delivery regulations, it’s probable that companies like UPS will have to shift their drone delivery tests to foreign markets, as Amazon did in the UK.
The parcel delivery industry — a segment of the shipping sector that deals with the transportation of packages to consumers — is booming thanks to e-commerce growth, and players outside the industry want a piece of the pie.
BI Intelligence, Business Insider's premium research service, has compiled a detailed report on the future of shipping that looks at efforts by Amazon, Alibaba, and Walmart to handle more of their own shipping and concludes that big retailers are well positioned to disrupt the parcel industry.
Here are some of the key points from the report:
Transportation and logistics could be the next billion dollar opportunity for e-commerce companies. The global shipping market, including ocean, air, and truck freight, is a $2.1 trillion market, according to World Bank, Boeing, and Golden Valley Co.
There is much at stake for legacy shipping companies, which have seen a boom in parcel delivery as e-commerce spending has risen. Twenty different partners currently share the duties of shipping Amazon's 600 million packages a year, with FedEx, USPS, and UPS moving the most.
Amazon, Alibaba, and Walmart have so far focused on building out their last-mile delivery and logistics services but are increasingly going after the middle- and first-mile of the shipping chain.
Amazon has already made major moves across each stage of the shipping journey. It launched same-day delivery service, which it handles through its own fleet of carriers, cutting out any third-party shippers. The company also recently began establishing shipping routes between China and North America.
Walmart's interest in expanding its transportation and logistics operations is almost purely related to cost-savings. It's begun leasing shipping containers to transport manufactured goods from China and is making greater use of lockers and in-store pickup options to cut down on delivery costs.
Alibaba has begun leasing containers on ships, similar to Amazon's Dragon Boat initiative. This means that Alibaba Logistics can now facilitate first-mile shipping for third-party merchants on its marketplace.
In full, the report:
Sizes the market for the shipping industry.
Explains how the industry operates in broad terms.
Suggests why major e-commerce retailers should disrupt the space.
Outlines the shipping initiatives of Amazon, Walmart, and Alibaba.
Concludes how these moves might impact traditional carriers.
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