Little did I think that the fictional drone in the movie ‘Back to the Future – 2’ in 1989 that was clicking a picture of a criminal being arrested, will be a reality in 2016 with fellow tourists capturing videos of the surreal Oxararfoss in Iceland. Just shows how futuristic human minds are capable of thinking and eventually creating… and that we still have much more we can do with technology. So, while drones are fast becoming popular in consumer uses like photo/video-graphy, racing events and as toys, the more important question is when will we see them become a business reality. (I don’t think its a question of ‘if’ but only ‘when’)
In this article are my thoughts on potential use-cases of drones in the logistics industry and whether the business case stacks up for these use-cases. Do note that the discussion here is limited to drones as unmanned aerial vehicles (UAVs) and does not include ‘ground drones’.
Use-cases in logistics: Based on various studies and pilots by numerous companies, the potential practical use-cases of drones in logistics can be largely classified into the following 5 categories:
- Intra-logistics: Standard tasks within logistics facilities that can be programmed to be performed by drones e.g.
- Internal deliveries within plants or warehouses (e.g. high bay storage)
- Asset tracking and inventory management / stock keeping. PINC Air is the world’s first FAA approved drone to redefine how inventory is tracked. Walmart recently announced that it is 6-9 months away from using drones for inventory tracking in one of their regional distribution centers.
- Trucks loading / un-loading
- Palletizing i.e. Qimarox testing drones that can pick goods off the shelves and assemble into pallet loads
- Last mile deliveries: Deliveries in the last leg of the supply chain e.g.
- e-commerce deliveries from the logistics hub to end consumer or to a dropbox. Multiple pilots are ongoing in this area – be it 7-eleven partnering with Flirtey to deliver a chicken sandwich, Amazon Prime Air, SwissPost – Matternet trials or DHL Parcelcopter.
- spare parts deliveries from logistics hub to site location (e.g. escalator breakdown)
- e-commerce deliveries from a vehicle serving as mother-ships for drones to end consumer. Daimler, recently, announced a partnership with Matternet to invest $560 mn to develop delivery van drones.
- Unreachable areas deliveries: Delivering goods to areas not easily reachable by current forms of transport e.g.
- Rural deliveries / Remote islands with poor infrastructure connectivity or challenging geographical conditions
- Restocking supply on ships-in-sea. Maersk estimates saving ~$9000 per ship in annual operating costs if drones can be used for this purpose
- Disaster response or humanitarian aid: e.g.
- Search and rescue operations, first aid / food deliveries in natural disaster situations
- Urgent medical deliveries e.g. human organs for transplant (being evaluated by Fortis Hospitals in India), blood transport from blood bank, vaccine supplies.
- Infrastructure surveillance: Security surveillance, possibly integrated with visibility systems like control towers or WMS (warehouse management systems) e.g.
- Security of high value or sensitive cargo
- Surveillance of industrial plants, logistics assets, port facilities. Abu Dhabi Ports Company is using 2 drones as ‘eye in the sky’ cameras at its 4 ports.
Does the business case work: To evaluate how real the possibility of the above use-cases is, an impact vs. feasibility analysis is conducted as below.
Impact determined based on 1) Potential business case 2) Urgency of need 3) Productivity improvement
Feasibility determined based on 1) Safety 2) Privacy concern 3) Regulatory concerns (i.e. considerations of weight, height, day time flights, line of sight, congested airspace)
|Intra-logistics||+ Potential business case exists: e.g. Consider 2 drones (~$1000 p.a.) replacing annual inventory counting task conducted by 2 staff in 5 days (~$1000 p.a.). Assuming drone cost ($2000) depreciated over 5 yrs + 10% other costs (e.g. maintenance, setup, resource, etc.) = $480*2 = ~1000. And assuming resources saved = ~2 employees*5days*$100/day = $1000
– Urgency limited
+ Productivity potentially improved / chance of error reduced
|+ Safety higher as confined area, possibly within line of sight
+ Limited privacy concern
+ Limited regulatory concerns
|Last mile deliveries||– Unclear business case: Economics of last mile depend on possibility of 1) Milk run (drones weight/ size/ battery life/ flying time restricts the no. of shipments in one run), 2) Tracking in-transit (achieved by GPS), 3) Transit time (faster in congested areas), 4) Proof of delivery (drone accessible by pre-agreed code only / time & location stamp auto-generated upon delivery). While factors 2), 3), 4) are positive, factor 1) weakens the profitability
+ Urgency higher as consumers get more demanding
– Overall productivity might be lower (considering milk run is much shorter)
|– Safety threat (airspace)
– Privacy issue
– Regulatory concerns exist
|Unreachable areas deliveries||+ Business case: Maersk evaluated restocking a ship with drones saves could save $9000 per ship p.a.
– Urgency limited
+ Productivity higher vs. e.g. docking ship at multiple ports
|– Safety concern as out of line of sight
– Privacy concern exists
– Regulatory concerns exists
|Disaster response or Humanitarian aid||+ Business case: potentially viable for urgent medicines/ food items/ first aid/ recording video of situation on ground, etc.
+ Urgency higher
+ Productivity higher vs. finding alternative transport options in disaster struck areas
|+ Safety/ Privacy: less concern vs. ability to reach disaster areas
+/- Regulatory challenge still as might be out of line of sight/ weight limitations etc.
|Infrastructure Surveillance||+ Business case possibly exists: assuming 2 drones (~$1000 p.a.) used instead of 1 security guard ($24k p.a.)
– Urgency limited
+ Productivity higher vs. manual labor for large areas e.g. shipyards, oil fields, plants, etc.
|+ Safety higher as confined area / within line of sight possibly
+ Privacy – similar to e.g. CCTV surveillance
+ Regulatory requirements easier to meet
Based on the above analysis, the 3 use-cases which can be prioritized and which will likely be a reality faster are the more dull, dirty and dangerous missions of:
- Disaster response
- Infrastructure surveillance
The use-cases related to last mile delivery and unreachable areas deliveries still need to overcome the regulatory, safety and privacy concerns… and need the drone technology to become even more smaller, cheaper and lighter.