How Drones Are Changing the Business World

While technology has transformed many industries over recent years, the processes and costs related to shipping have remained relatively unchanged. Traditional service providers such as USPS, UPS (UPS), and FedEx (FDX) remain the primary source of shipping services for online retailers. Their services are augmented, of course, by no fewer than 275,000 delivery drivers who contract with Amazon to handle its overflow. But even Amazon still needs the U.S. Postal Service.

Drones, or unmanned aerial vehicles (UAV) as they are often called, have the potential to change the delivery industry, but it has been a long, hard slog for companies that are struggling to introduce drone use commercially.

By early 2022, more than 2,000 deliveries by drone were being completed every day globally, according to a report by McKinsey & Co. That's quite an achievement, but Amazon alone delivers 1.6 million packages a day, and its own drone delivery service is up and running in only two towns in the U.S.

The reasons for the slow adoption of this promising technology are many and complex.

The Status of Drone Delivery Services

Amazon has been working on drones since at least 2013 when company founder Jeff Bezos announced on CBS News 60 Minutes that the company was preparing for a drone delivery trial.

As of mid-September 2023, Amazon Drone Delivery is up and flying in two locations in the U.S.: College Station, Texas, and Lockeland, California.

Homeowners who sign up for drone delivery first get a visit from a surveyor who identifies a landing spot on their lawns and provides a mini marker to identify it. Eligible apartment buildings can set aside a drone delivery area.

Google's Drone Delivery Plan

Alphabet, the parent company of Google, is using drones to capture some of the high-resolution images it uses in Google Maps.

But the company has bigger plans for drones.

Walmart With Wings

Another subsidiary of Alphabet, called Wing, has announced plans for its Wing Delivery Network to ramp up enough capacity to handle millions of deliveries by mid-2024. As of mid-September 2023, Wing Delivery was being tested in Logan, Australia, and was delivering up to 1,000 packages a day.

Wing is focused on the logistics of drone delivery, not on drone technology, in the belief that drones can only be viable if economies of scale are achieved.

No surprise, then, that Wing signed an agreement with Walmart in August 2023 to launch local drone delivery of purchases, beginning with two Walmart Supercenters in the Dallas-Fort Worth area. The companies say their drones can cruise at 65 miles per hour but can drop off a carton of eggs from a tether without breaking them.

FedEx

FedEx is partnering with Elroy Air to launch test flights of Elroy's Chaparral aircraft.

This ginormous drone is capable of transporting 300 to 500 pounds of goods up to 300 miles, according to ABC Channel 24 in Memphis, where FedEx has its headquarters.

DoorDash and UberEats

The food delivery service DoorDash has launched drone delivery in Queensland, Australia. Its technology for the trial was provided by Alphabet subsidiary Wing.

Uber, meanwhile, has partnered with McDonald's to test drone delivery of burgers to students at San Diego State University.

The test was done with hard-won approval of the Federal Aviation Administration and involves a complicated plan to drop off food orders at a pre-determined point, where they will be picked up by a human for last-mile delivery.

The Status of Drone Regulations

While the financial and economic outlook for drones is robust, the Federal Aviation Administration's (FAA) regulations addressing privacy and safety concerns have delayed a bigger launch of commercial drone services.

The use of drones for fun or profit is regulated by the FDA and the rules, not surprisingly, are tough for non-military users.

The agency has occasionally permitted limited tests of commercial drones. But its regulations for drone use include a requirement that a drone in flight must always be directly observed by a flight controller, unaided by any device other than eyeglasses. The flight must be watched from beginning to end so that the observer can spot any obstructions or risks.

Over the years during which drones have been in development, the FAA has made some changes to the rules. The agency acknowledges that these are "incremental" steps toward the integration of unmanned drones into U.S. airspace.

For example, a 2021 rule change allows drones to operate over a pre-set route that passes over people, but only at night and only after the people have been notified that it might happen.

Advantages of Drones

For years, drones were limited to military use due to their high costs and technical sophistication. Rapid technological innovation has provided consumers with cutting-edge products at affordable prices.

For about $330, anyone can now buy a drone equipped with GPS and a 4K camera. Mini-versions for kids cost as little as $40.

But it will be brought to your doorstep by a human being, not a drone, at least in the near future.

Environmental and Economic Benefits

Despite the regulatory hurdles, the economic implications of commercial drone use are undeniable. The global commercial drone market size in 2022 was estimated at just under $20 billion. Its growth is projected at a compound annual rate of 13.9% through 2030.

Their use went well beyond last-mile package delivery. Drones are being used for surveying, surveilling, and securing remote sites. Drones became widely used in the healthcare industry during the COVID-19 pandemic to transport medicine and test samples.

The environmental benefit could be immense. If delivery drones gain widespread usage, it would reduce reliance on vehicles for many companies. If widely adopted, it could help many countries meet emissions targets set in various global agreements.

Notably, commercial drones may have their widest initial use in agriculture and infrastructure rather than commerce. Due to their ability to cover large areas, drones can effectively feed and hydrate plants while also limiting exposure to diseases. Moreover, their use in rural areas would have significantly fewer safety and privacy concerns than in urban and suburban neighborhoods.

The Jobs Outlook

On a macroeconomic scale, proponents of drone technology say the integration of UAVs could create more than 100,000 jobs. Over a 10-year span, job creation from commercial drone use will consist primarily of manufacturing jobs and drone operator jobs. States would also benefit from tax windfalls stemming from increased economic activity.

Commercial drones will also allow industries to realize savings from more cost-effective means of inventory, transportation, and distribution.

Disadvantages of Drones

While the financial implications of drone use are robust, many regulators and consumers are concerned about the potential downside of UAV use. Forty-four states have passed their own laws on drone usage for commercial, recreational, and public use, although many don't go much farther than endorsing the federal regulations.

Widespread use of drones also can be expected to increase privacy concerns among citizens already nervous about corporate and government data collection. Drones typically use a camera and GPS to navigate delivery destinations, which many believe to be intrusive.

Drone delivery services offered will face their own logistical roadblocks, especially in densely populated areas. Navigating around buildings alone will be a major feat. Accessing apartment units within city skyscrapers is an insurmountable feat. Aside from logistical and privacy concerns, wildlife such as birds face higher risks with the greater number of aerial vehicles.

The Bottom Line

The integration of drones into national airspace will not only benefit e-commerce businesses like Amazon but also industries such as agriculture, public safety, and natural disaster management, to name a few.

In a more altruistic manner, Google anticipates the use of its drones for the delivery of medical products and as a means of protecting the environment.

The economic benefits associated with UAV integration include job creation and billion-dollar growth. But like any transformative invention, drone technology faces a long hard road to mainstream adoption.