For business owners, keeping up with industry trends is a necessity in such a highly-competitive landscape, which ecommerce became within the last few years. Covid boosted the development of ecommerce with 73% of customers reporting they have been shopping online more during the pandemic than they had had before. And this demand, naturally, caused an increase in package delivery. According to The Washington Post, during the pandemic period, the volume of parcel deliveries reached 70% in comparison to the 5% that it normally accounted for before Covid. And given that 70% of consumers expect their packages to be delivered on the same day, it completely explains why drone delivery has become a hot topic.
Where Are We Now?
The same-day delivery even to the most remote places sounds exciting. That’s the miracle drone delivery may offer to us. Drones (or Unmanned Aerial Vehicle) provide contactless delivery of packages, food, or medical supplies (what performed particularly well during a pandemic). Moreover, drones consume way less energy per kilometer than traditional modes of delivery, they are cheaper, and, unlike delivery trucks, they can reach the most remote places. Sounds tempting. And, nevertheless, drone delivery is far from where it should be by now according to common prospects.
Back in 2016 The Federal Aviation Administration (FAA) – a US legislative body responsible for the air traffic regulation – predicted that by 2020 there will be 7 million drones flying in the sky. Instead, in 2020 the worldwide drone shipment reached only 5 million units. Meanwhile, in 2022 FAA announced that it registered 865,505 drones so far.
Only this year giants like Amazon and Zipline got FAA approval for using drones for delivery purposes. It took years for Amazon to develop and test the technology and pass through a rigorous FAA approval process. And even after all these the first deliveries are about to start only by the end of 2022.
It may seem that the whole story about drone delivery outburst is a bit overrated. But it isn’t. The recent slow development of this field has a number of reasons which I’ll outline below. But drones will inevitably affect ecommerce and we have to get prepared.
What Is All This Rumpus About?
We live in a fast-paced world where instant gratification is no longer a privilege, but rather a necessity. And ecommerce has been a significant driver here to boost the customers’ expectations in terms of speed of getting what they want. In this stance, in the early 2000s Amazon was the first to raise consumers’ expectations by reducing the average delivery time to two days, and in some locations, even to same-day delivery.
Thus, it became natural that to win the consumers’ hearts it’s necessary to have not only high-quality products, but also a fast website, advanced filtering system, easy checkout, and a flash-like delivery. To boost the website performance fivefold you might need to move to the advanced software, but with delivery, things are a bit complicated.
Fast Delivery Matters
Today, once mind-blowing two-day delivery became the new five-day. McKinsey reports that more than 90% of consumers now see two-day delivery as the baseline, while same-day one is what most people expect in the near future. What is more, the inability to meet these expectations results in shopping cart abandonment at the checkout stage in 46% of cases. As a result, more than 75% of retail leaders made two-day delivery a priority, and more than 40% of them aim to introduce same-day delivery by the end of 2022.
Meanwhile, another study performed by Usabilla proves that the primary reason for cart abandonment in 58% of cases is the high shipping cost. While another 8% of respondents will drop the checkout because of the longer-than-expected delivery time. Though Amazon Prime can offer free two-day delivery, it puts other retailers under pressure to meet low-cost fast-paced delivery demands to be in a shape to continue to compete with the marketplace giant.
Thus, it’s clear that the delivery time and cost now are the factors that inevitably affect the consumers’ decision to complete the purchase. If the ecommerce company fails to meet high expectations, sales will eventually hit the bottom. This poses a question of how realistic these terms are and what new delivery models may cover such demand.
Drone Delivery Market Overview
Once, drone delivery is going to become the new black. It’s not yet, but drone delivery is a model that can be a retailers’ answer to consumers’ high demands. Modern drones can fly at the pace of 50 miles per hour and still be 90% cheaper than their on-land alternative – delivery trucks. No wonder the Fortune Business Insights report predicts that the drone package delivery market size will grow from $1.5B in 2021 to $31.1B by 2028 at a CAGR of 53.94% in the mentioned period.
However, despite the numerous benefits that are usually mentioned about drone package delivery – lightning-like speed, low cost in comparison to car delivery, and access to remote areas – it seems that the projected huge growth of this market is delayed.
Factors Restraining the Drone Delivery
The buzz around drone delivery has been swirling for the last five years, but for now, only four major U.S. giants have received FAA certification – Wing Aviation LLC, UPS Flight Forward, Amazon, and Zipline, meaning that it will take another few years for other smaller companies to be accredited and to form a competitive market. The problem lies in the long-lasted lack of regulations on how the drones may be used, what requirements they must possess, and what certificates the drone operators should have.
The U.S. Market Overview
In particular, a huge lag in catching up with the regulations for drone operations, the U.S. has overcome only in 2020, when the FAA allowed small commercial drones to fly short distances over people and at night without waver.
Back then, FAA Administrator Steve Dickson noted that new rules “get us closer to the day when we will more routinely see drone operations such as the delivery of packages.”
Indeed, new rules became a significant step toward the future of commercial drone deliveries. However, there are still things to do to make drone delivery mainstream in the U.S. – like, allowing drone flights beyond an operator’s visual line of sight, which has been implemented in Europe far before.
That explains why the U.S. drone delivery market is still in its early stage with low competition.
Most key players on the market are represented by technology-based companies with strong distribution networks in developed and emerging economies. The giants like UPS, Zipline International, Amazon in the U.S., and Deutsche Post DHL Group in Europe are expected to lead the market.
For now, in the U.S. there are four major companies on the market:
- Wing Aviation, LLC is the first company to receive an FAA certificate for drone operations in April 2019. Now, Wing Aviation delivers over-the-counter medicines and food directly to households in Christiansburg, VA.
- UPS Flight Forward, Inc. received its certificate in September 2019. It conducted its first drone flights to hospital campuses delivering medical supplies in Raleigh, NC.
- Amazon started testing drone delivery in 2013, and requested FAA approval for commercial drone use in 2019. It started commercial operation in August 2020, but only in June 2022 it got an FAA certificate for its custom-developed drone and now it’s the only company that can operate a drone larger than 55lbs. Currently, Amazon delivers products in Oregon and Northern California. But with a planned start of the Amazon Prime Air program by the end of 2022, further expansion is ahead.
- Zipline became the fourth drone operator in the U.S. authorized to perform common carriage operations as of June 2022.
The polishing of the certification process and introduction of federal programs for authorization of drone flights beyond the visual line of sight increases the chances of smaller companies to enter the market competition.
A Glance at the European Market
Unlike the U.S. with its complex regulatory environment, Europe seems to be far ahead in terms of regulations for the commercial use of drones. Since 2019, Amazon has been struggling with the invention of its highly-complex sense-and-avoid system to enable drone deliveries to take place without a visual observer that is required by FAA. In the meantime, an Irish delivery company was already able to perform from 2,000 to 3,000 deliveries per day. Having less ambitious plans than Amazon with its 55lbs delivery, Manna started operating within the limits of one 40,000 people city delivering coffee and fresh pastries sharpening their processes. And now, in one year, it is the primary drone delivery company in Ireland. Start small and scale fast, as I say.
In general, the drone delivery ecosystem is still in its evolutionary stage with high operational costs and the ongoing development of drones able to carry heavy weights. Strict flight limitations and a long-lasted lack of government regulations posed a significant impediment to drone delivery development.
Alongside the regulatory challenges, the factor behind its slow development is also a relatively low level of readiness for such type of technology varying from country to country. For instance, only 14% of German respondents said to Statista that they were ready for drone delivery in comparison to 225 in the United States.
Such numbers may seem a bit shocking in the digital era like now. But actually, only a few years ago even online shopping was a matter of concern for a lot of people. Pandemic changed the shopping behavior of almost 80% of shoppers as reported by McKinsey. With more than half of them planning to continue the practice in a post-Covid-19 reality.
Covid Changed Everything
In the light of the pandemic, not only our attitude to hygiene routine has changed drastically, but as the above mentioned reports show, the shoppers behavior as well. These changes may be also projected on the drone delivery services. With the rise of demand for contactless package delivery, and for speedy delivery to remote areas, drones demonstrated their capacities in full.
For example, in 2019 UPS Logistics, the first commercial company that received FAA certification, developed a drone delivery network for the U.S. hospitals and delivered 1850 pathological samples across North Carolina.
The same year, Zipline International concluded an agreement with the Health Ministry of Ghana to provide drone delivery services for 2000 clinics and hospitals 24/7. It performed over 300,000 of medical deliveries in Africa, including distribution of Covid-19 vaccines. That’s what I mean, when I speak about delivery in remote places. Its drone is more similar to a traditional plane and due to that is able to fly longer distances in comparison to its competitors, which drones mostly can take off only vertically.
In short, the pandemic uncovered the drone delivery potential and provided a room for the commercial use of delivery drones that demonstrated effective and smooth performance.
Due to slow adaptation of restaurants, healthcare providers, logistics platforms, and ecommerce companies to new reality, Covid propelled drone services adoption among society.
The Prospects of the Drone Delivery in the Nearest Future
Even though the Covid-19 pandemic has passed over its peak, the demand for contactless delivery systems across supply chains still grows. It is expected to boost the growth of the drone delivery market during 2021-2028.
However, it’s not the only factor that drives the development and adoption of drone delivery.
Countering the Climate Change
Drone technology is more environmentally friendly than alternative car delivery. Expanding drone delivery chains may help to mitigate the adverse effects of the carbon emissions increase on the planet’s climate.
It’s even more of high importance now since the car delivery not only contributes to carbon footprint but due to the fuel prices rise, becomes even more expensive in comparison to the drone delivery.
Rise of the Commercial Use of Drones
It is anticipated that the growing use of drones in commercial applications in key industries including agriculture, logistics & transportation, and healthcare will drive demand for drone delivery services. The vast adoption of drone delivery by ecommerce local businesses for market expansion, by healthcare operators for higher patient response rates, and by drug suppliers for delivery of life-saving vaccines will propel the drone delivery development.
In addition, high demand for same-day delivery among consumers and currently high charges for the delivery services imposed by the key market players in the light of low competition will also boost the market growth.
Increase of Investments
In 2021, IPO and venture capital funds invested almost $7 billion into the drone industry. That’s a drastic growth if compared to $2.4 billion put in 2020. Active financing of the industry allows for its faster development. To add, drone manufacturers now focus on developing cost-effective solutions capable of carrying heavy packages over longer distances. The introduction of low-cost services and the conclusion of strategic partnerships with retailers and ecommerce will inevitably result in more intensive industry development.
How to Atop the Drone Delivery Trend
To meet the increasing consumers’ demand for rapid delivery, according to McKinsey, almost “75% of the specialty retail supply chain leaders have made 2-day delivery a priority, and 42% are aiming for same-day delivery by 2022.”
Failure to meet expectations on delivery time has consequences for ecommerce. McKinsey notes that 46% of online customers will abandon their shopping cart if they discover at checkout that the delivery takes longer than expected. And given that more than 90% of them expect a maximum two-day delivery, drone delivery may become a solution for ecommerce companies looking for ways how to meet demand. There are several ways to implement new delivery models.
1. Obtain FAA Part 135 Air Carrier and Operator Certification
It may not be the solution for small ecommerce companies, but for large retailers, it can be an answer. If the company is a US resident and has to deal with the slightly monopolized drone delivery market which it is now, obtaining the certification by oneself would be more efficient.
14 CFR Part 135 or Air Carrier and Operator Certification was not created exclusively for drone flight. It is an already existing set of rules that regulate air delivery of goods or mail intra- or interstate.
To be eligible for certification it is enough to possess at least one aircraft and the applicant must own it or have a minimum 6-month lease.
According to the FAA fact sheet, small drones must be equipped with anti-collision lights to help remotely identify both the aircraft and their operators. Also, according to new rules, pilots who should pass a training test every two years now may complete it online instead of undergoing it in person.
The certification process consists of 5 phases:
- Formal application
- Design assessment
- Performance assessment
- Administrative functions
The certification process is set to ensure that the applicant has the capabilities to perform delivery operations in compliance with the FAA’s standards of safety. This includes providing documents for the purchase or lease of aircraft, company training plans, and manuals.
2. Establish Partnerships
Those ecommerce companies that don’t possess such in-house abilities, may consider partnering with third-party delivery services. For example, Macy’s partners with DoorDash to ensure same-day delivery of goods. Walmart partnered with Flytrex in 2021 to use its drones as part of its air delivery program. Some local businesses as well as FedEx and Walgreens concluded a partnership with Wing in 2021 to respond to a sharp increase in contactless delivery amidst the Covid pandemic.
3. Offer more delivery options
Based on the analysis of consumers’ expectations, retailers should define the capacities needed to meet those expectations. Meaning, that if an ecommerce company sells products that are customized or for any other reason are worth a wait, it can handle the customers’ expectations by merely being transparent on where their orders are.
In addition, delivery options may range from in-house (via extended in-store fulfillment) to partnerships with third-party fast delivery operators or may mix it. For example, Walmart continuously expands its delivery offers. Since 2016 its delivery model includes two-day free shipment with a purchase of $35 or more. In its another program called InHome delivery associates get groceries to customers’ homes and leave them in the fridge.
In short, the business model, the type of products delivered, and the particular customers’ expectations are the factors that distinguish the delivery proposal. Meaning, that not all customers may require rapid drone-covered delivery.
Commercial drone cargo delivery makes slow but steady progress. It seems that long-awaited market growth is about to happen with more and more companies achieving certifications for long-distance and high-load air deliveries.
Drones proved themselves as a solution for last-mile delivery. And along with its greater cost and resource efficiency, it’s about to become the new standard of delivery. But it is still a matter of the future of ecommerce rather than the present. Only a few retailers are capable of following the trend. The market threshold is still high for ordinary ecommerce companies. In the light of oil and gas prices increasing, standard delivery options will become more expensive, which may drive the drone market. However, despite the stabilization of regulatory processes, it’s unlikely that drone delivery will become mainstream this or the next year.