
The Economics of Drone Delivery - Futurebot
https://www.flexport.com/blog/drone-delivery-economics/
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shawn-furyan
Strange that an article with this title that talks so much about Amazon's
drone efforts doesn't examine Amazon's relationship with the delivery
industry. Amazon desperately wants to economically remove the time lag between
buying something from Amazon and buying from the nearest Wal-Mart. Drones have
the potential of significantly improving delivery times and costs in the long
run, but the delivery industry has little incentive to innovate in this area
since they already command high margins on small package deliveries.

For Amazon, it's not necessarily about how well they can execute on their
drone delivery program. I imagine that Amazon will actually make a go of
turning drone fulfillment into a business, a la AWS, though the effort is
still worthwhile for them even if that never happens. With this drone program,
they are able to provide a large scale proof of concept, working through legal
barriers that are relatively trivial for a company with Amazon's resources,
but insurmountable for hypothetical drone logistics startups that might want
to put pressure on UPS et al. But once the grunt work is done, the barriers to
competing in the logistics industry through drone fleets will be substantially
diminished.

This is the big upside for Amazon here: paving the way for increased
competition in the delivery industry (whether it ends up primarily being
driven by Amazon, incumbent companies, or startups) which will have the likely
impact of improving it's unit costs while having the potential of eventually
bringing it into parity with regards to the largest remaining advantage that
Wal-Mart retains, same-day delivery.

The unit costs and limitations aren't particularly relevant to much at this
point in time. Those will significantly improve as competition increases, as
is typical in maturing technology industries.

~~~
ghaff
Whether or not drone delivery becomes a mainstream part of the equation--I
suspect it won't but that's beside the point--it's certainly in Amazon's
interests to research and encourage innovation in the logistics business. Mind
you, there's already a lot of innovation happening in supply chain systems but
economical 1 hr to 1 day consumer delivery hasn't had any real breakthroughs.

Now that may be because people aren't willing to shoulder the cost for most
mainstream use cases. But in that case, it's worth experimenting to see if
costs can be driven down or use cases can be expanded in various ways.

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shawn-furyan
I've got to think that Amazon could rent out the roofs on commercial buildings
throughout cities pretty cheaply. Doing so could completely moot the range
issue as it would enable drone relays. I'm sure there will be regulatory
barriers to doing that, but if they can get FAA approval for their delivery
program as a whole, I'm sure they can get to a tipping point of municipalities
that enable this sort of relay system. It might even be a Google Fiber sort of
thing, where people actively lobby their municipalities to remove regulatory
barriers so as to bring the city's technological capabilities in line with the
state of the art.

~~~
rpercy
Agreed. Another possibility would be a hybrid approach with delivery trucks
acting as mobile distribution centers. Trucks could be loaded with drones and
packages, park in rural areas and let the drones take care of the last mile.

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sophacles
I wonder how energy costs would factor into these economics. A couple of
thoughts off the top of my head:

* drones run on electricity - they are less energy efficient than ground vehicles, but this can be offset by cheapness of electricity - particularly in areas where battery recharge could be done by solar or wind.

* The large banks of batteries required to make the drones economically efficient (I imagine it would be cheapest to have a couple sets of batteries per drone and swap them out to allow continuous drone operation, rather than recharging each individual drone) might be useful for secondary operations when delivery periods are slow - e.g. using the bank of solar charged batteries to power night operations when the next day's deliveries are going to be slow.

Similarly I wonder how having an army of drones out in the world might have
secondary economic impacts for the operators:

* For a small power budget, the drones could be equipped with additional sensors to gather data on various things and provide a sensor stream for 3rd party purchase.

* the video information I would imagine they already stream back could provide all sorts of benefit - selling the video to the news if a drone is in the area of a newsworthy event.

* similar to the previous point, but for traffic info.

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WalterBright
An airplane is far more efficient than a helicopter (drone). Also, I can't
imagine that a drone flying the last mile is going to be less energy efficient
than driving that big heavy delivery truck.

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baddox
Per pound of cargo I'm sure the delivery truck is way more energy efficient if
it's relatively full.

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mikeash
Per pound per mile, I'm sure it is. But most packages get driven _way_ farther
than they need to be, since one truck is out all day dropping off packages.
Per pound per delivery, I'd bet the truck loses.

~~~
baddox
That's a good point, and a lot harder to estimate since there are probably a
wide variety of routes that a package might take.

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amelius
Thinking a little further. In the future, we will have autonomous cars, and a
user will probably not "own" the car, but will simply order it. And the user
can specify if (s)he would like to share their ride. This car can easily have
additional functions, for example package-delivery (a package is nothing more
than a shared ride with a non-human passenger). Of course the logistics will
be run from a central computer system. Perhaps this could be a more cost-
effective solution to the whole package-delivery problem (?)

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dmitriy_ko
Yes, and package delivery autonomous car can be made very small -- just big
enough to carry the package. In fact, a ground-based autonomous delivery
vehicle doesn't have to look anything like a car. Imaging an autonomous
Segway-like 2-wheel cart. Segway is 4.5 times more efficient that Toyota Prius
and 11 times more efficient than average American passenger vehicle.[1]
Something like that would allow delivering packages very cheaply.

[1]
[http://www.segway.com/downloads/pdfs/energy_efficient_segway...](http://www.segway.com/downloads/pdfs/energy_efficient_segway_whitepaper.pdf)

~~~
amelius
If everything is really well orchestrated logistically, your Segway solution
could attach (piggyback) to a bigger autonomous vehicle for a certain duration
for greater efficiency, higher speed and bigger radius. Of course, the fuel
costs will have to be split, but that is just a matter of making smart
accounting software.

~~~
dmitriy_ko
I like that idea -- for less time-sensetive deliveries you could have a
"mothership" truck loaded with mini-vehicles drive to a neighborhood center
and then release them. However, for things like food delivery where you want
to deliver in under an hour, it will be better to just use mini-vehicles.

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desireco42
What we have here is kind of lack of imagination. There are at least 2 parts
of delivery that I see can be worked on with drones. One is last mile
delivery, that honestly is challenging, unless you live in suburban or rural
area.

However one, more interesting and probably lucrative part that should be
easier to implement would be transport between major hub to nearby delivery
point. Since these points can be built out and/or prepared, you can have
deliveries coming non-stop, through FAA approved route, and then delivered
from there. It doesn't even have to be dedicated Amazon employee, they can
offer pick up or delivery by Uber or something like that.

For me this part can be very creative and I am surprised that Amazon doesn't
see this as promising area of investment.

~~~
ChuckMcM
That is certainly an interesting point. Modern distribution centers use
conveyers to move packages to the truck loading port where they will be loaded
on to trucks for delivery. Why not extend the conveyer through the sky to a
truck loading port a couple of miles away. If you lay out reliable
ingress/egress channels for the drone traffic you could probably stack 300 -
400 drones per mile in that channel, operating all day would certainly expand
the virtual "size" of your warehouse.

~~~
desireco42
That is pretty much how I would envision it. Once you build that, suddenly
another level of things that we can't even imagine today are becoming
available.

Plus ecologically would probably be very good and less trucks on the roads.

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jchoong
I'ld add that drone delivery for takeout would be a nice win, given that most
restaurants that deliver are already limited to nearby locations and speed is
desired.

With a proviso that it might be easier in a suburban situation to begin (given
a lawn to drop off the goods).

~~~
ghaff
The thing is that quick, low-price takeout delivery to a limited radius of
households is pretty much a solved problem. I suppose one could imagine more
industrialized takeout-only restaurants in suburban locations but, again,one
could create such a chain today and indeed we have them for say pizza. They're
not very good but they're big businesses.

~~~
ams6110
If you could solve the problem of needing to directly interact with the
customer to collect payment, I'd think food delivery would love the idea of
drones. The biggest cost of a pizza delivery shop is paying the drivers. They
normally get an hourly wage, plus mileage if they are using their own cars.

They'd need to solve payment collection; a lot of people still pay cash for
things like food delivery.

~~~
ghaff
I don't use any of them because I don't live in an urban area, but my
understanding is that apps like GrubHub can handle the payment process.

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legulere
> Instead, the real challenge is the regulatory environment. The FAA has
> banned all commercial uses of drones in the U.S.

I always don't understand this reasoning. There are tons of other markets,
many of which Amazon is active in. Being successful there without any problems
would be the perfect argument to also allow it in the US.

~~~
waterlesscloud
Amazon has set up drone delivery research centers in the UK and Israel for
just this reason.

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brokenrib
what about delivery truck as drone carrier?

when the truck is close to destination, drone(s) are detached to drop/pick
package(s), only to return to the truck after finishing the work. this
eliminates truck stops.

imagine a flying bee hive

~~~
ghaff
I would think that once you're sending out trucks anyway, there isn't much
even potential win in layering a complex air delivery system on top of that.
In addition, you're adding another source of latency and, to the degree that
drone delivery makes any sense at all, I expect it would be used for very time
sensitive material.

~~~
sophacles
Maybe not trucks specifically, but I would imagine that having the notion of
mobile or temporary drone launch points would help a lot during busy times -
e.g. the week before christmas.

I watched all the major carriers sending out multiple delivery dispatches a
day through my neighborhood. To the point that the bottleneck appeared to be
concurrency issues on driver time (as I tracked a few packages through the
various systems). For my family, many of the packages fell within reasonable
drone parameters and a lot of them had a significant pause time at local
delivery base (e.g. UPS truck loading center or post ofice). I imagine a
steady stream of drones from a temporary drone base would help lighten this
load. Imagine sending a semi-truck that operates as a drone base to a big
parking lot, appropriately located to be in a delivery dense area. A handful
of employees does piloting and battery swapping and drone loading, while a
delivery truck brings packages to the temporary hub. When the busy and/or
overload time is over, the truck can go back home, or on to the next place
expecting an overload. It wouldn't take a lot of saved overtime and seasonal
labor costs to make this a win.

 _edit:_ I would also imagine that a lot of driver time during christmas
anyway is wasted on traffic issues, part of which are compounded by them!
Drones wouldn't have this so much.

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lxmorj
Organ delivery might be a good place to test initial drone delivery. It's very
high value with very few, well-defined pick-up and delivery points.

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rdlecler1
Driverless trucks as distribution centers/battery swaps, and rooftop drone
stations, could bring this down to last meter delivery, rather than last mile
delivery. You just need delivery from curb to door step which a truck can now
do and multiple drones can be delivering packages at one time.

Going to back-of-the-napkin this here: Current cost (just for person making
the drop) is about $1.50/stop. Assume six packages/stop. So now you just need
six drones to fly a single package from a truck to the doorstep for $0.25/each
in that stop. So each drone will need to make 120 such runs/day for under
$30.00 ($150/week, $7,800/year). This should be enough to easily cover
energy/CAPEX as I assume that drones would be operating autonomously, and
maybe you'd need one override-pilot in a support center for every 100 drones
(basically one manual override every 17 stops).

Given the sanity check above, I'd wager that you could easily get this down to
$0.05-$0.10 per package, including edge cases covering 99% of the deliveries.
Big deliveries like TVs may ask the owner to come out to the (driverless)
truck to pick it up at the side of the road while a drone century waits.

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aurelianito
The killer apps for drones are smuggling and delivery of illegal drugs. A
kilogram of drugs is very expensive, so the drone costs are not relevant and
it allows the seller not to be caught. They will also not be stopped by
government regulations.

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TheCoelacanth
But it also runs afoul of the "don't break two laws at once" principle. If you
deliver drugs via conventional methods, the police need probable cause to stop
and search you for drugs. If you deliver them via illegal drone, they can stop
and search your drones whenever they want.

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tonylemesmer
Drones are autonomous. Trucks require drivers. So the competition is between
how quickly trucks get automated vs the total system capacity of drones for
delivering stuff.

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elchief
UPS cost != UPS price

Also, not taking into account cost of roads that UPS doesn't pay, nor the fact
that flights are much more flexible compared to building roads

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ams6110
UPS pays for roads. They pay income tax generally, and they pay road use tax
on all their vehicles, and they pay for fuel which also has road tax.

