Drones: A Sky-High Vision for the Future of Logistics

Ben Gordon, Managing Partner, Cambridge Capital

Ben Gordon, Managing Partner, Cambridge Capital

Drones – are they ready to transform transportation, or are they just a sideshow?

If you combine the public’s fear of a robotic takeover with a mashup of Alfred Hitchcock’s “The Birds,” you end up with this Audi parody commercial about drones. Ominous swarms of black octocopter drones descend on innocent bystanders, dropping packages on cars and slamming into glass windows. It’s laughable because of its absurdity. But is it a legitimate fear?

Ironically, the video ends with the tagline, “Advanced technology doesn’t have to be intimidating.” However, people just don’t seem to like drones. That said, everyone loves what drones can actually do.  Ordering in? You could get a pizza delivered to your door in ten minutes. Shopping online? Amazon’s 30-minute package delivery could get consumer products to you in record time.

In theory, this is the future of the transportation and logistics industry. Yet when we go outside, the skies aren’t filled with a swarm of drones whirring above us as they carry packages to our doorsteps. Why not? The technology exists to make drone deliveries feasible, but there are plenty of impediments—regulations on airspace, package weight, and the need for certified pilots—that prevent large-scale adoption today. In practice, we still have a long way to go.

What troubles consumers about drone technology, and digital disruption in general, is the misunderstanding of technology as a soulless, job-destroying machine. Many people fear the “Brave New World” of automation. But everyone stands to benefit from drones: companies, consumers, the economy, and even the environment.

If we ignore new technologies, we will miss out on valuable innovations. Meanwhile, as other industries are experimenting on the possibilities of drones, the transportation, and logistics industry is already benefiting. Drone services are estimated to be worth $127 billion globally, $13 billion of which is based on drone-powered transportation.

In sum, drones are not just a consumer toy, but also a potential workhorse for the future of transportation. How will logistics drones unfold?

A complimentary solution to traditional transportation

Shippers have relied on traditional modes of transportation to date. Planes, trains and automobiles have formed the basis for the public understanding of the sector. Here is how drone technology will impact transportation as we know it:

• Ocean freight: Once the only means of transportation for international trade, ocean freight only solves a narrow subset of applications. Traditionally ocean freight has been a low-cost solution for low-value freight. It is constrained by its ability to serve limited pickup and dropoff locations, e.g. ports. In addition, ocean freight suffers from limited ability to track shipments. Drones could enhance the inspection and review process, tracking cargo in real-time as goods are loaded and unloaded. As an added bonus, drones can do this work too.

• Rail freight: Like ocean freight, railroads provide a low-cost transportation solution, but are limited to fixed pickup and dropoff locations.  Drones could complement rail. As a train traverses the country, drones could simultaneously remove packages and deliver them without stopping, thereby making these trips quicker and more efficient.•

• Truck freight: Trucks offer superior flexibility due to their ability to pick up and dropoff freight at individual locations. However, they are limited in terms of their speed, particularly in high-density urban locations. Trucks are also hampered in remote areas where road infrastructure is weak or nonexistent, e.g. in emerging markets. Drones can provide dramatically faster solutions in both markets. In addition, drones could eliminate the need to pay employees to load and unload truck cargo and track inventory, which could all be done autonomously.

• Airfreight: Airplanes are also constrained by fixed port locations. Drones can offer superior flexibility in terms of point-to-point routing. In addition, drones will hopefully one day be the cheaper, more environmentally friendly alternative to using planes for transportation. This breakthrough will result in speedier deliveries and immense cost savings for businesses and the consumer.

Your delivery is on its way—by drone

Today’s restrictions may delay drone deliveries, but in the future, these limitations will be overcome. Already, many innovative companies are working to perfect models to demonstrate proof of concept. Domino’s has already begun to deliver pizza by drones in New Zealand. Google’s parent company, Alphabet, used drones to deliver Chipotle burritos to Virginia Tech’s campus. And Zipline is using drones to deliver medicines faster in Ghana and other markets in Africa.

These examples may seem small today, but I believe they are monumental for the development of drone technology. Early adopters will be lightweight products like pizzas and medicines, due to weight restrictions. These smaller drones can only physically and legally carry packages under ten pounds, and Amazon Prime Air restricts their package weight to half that, at five pounds or less. In the future, I believe these deliveries will be able to exceed much higher weight limits, once their safety is proven.

The consumer benefits of drone deliveries are obvious: faster delivery times, more items available, and a fraction of the cost. In addition, you save money because drone technology can also save businesses money. In 2017, Amazon shipped over five billion packages to Prime customers, which cost them over $20 billion. But according to ARK Investing Group, Amazon could charge shoppers only $1 for drone delivery on packages under five pounds—welcomed savings on such otherwise high logistical costs. Consumers are willing to pay for faster deliveries, too. Last year, Amazon offered 1-day sooner shipping, and over two billion Prime members opted for this over the standard 2-day shipping option.

It seems that cheaper and speedier deliveries are a winning combination.

Thinking inside the box: drones in the warehouse

While full-fledged commercial drones for consumer delivery are not yet ready to take flight, drones are already showing their value indoors.

The supply chain is already being digitized. Drones are just one part of this larger transition. In a low-margin industry where incremental cost savings are vital, drones are helping to make operations more efficient, productive, and profitable.

In addition, the future of logistics is autonomy. Labor is expensive. Robots are automating multiple areas of the warehouse. Take Walmart, for example. They operate over 190 distribution centers across the United States, the smallest of which is the length of seventeen football fields. Walmart has begun using drones and other in-warehouse robots to automate jobs traditionally done by humans. These drones can collect data, monitor inventory, operate forklifts, and update the company’s warehouse management system (WMS), among other tasks. Two of their drones can do the work of over 100 humans at almost 100 percent accuracy. Further, because technology isn’t tethered to human faculties, their work can be done day and night. Putting drones in charge of inventory can save companies billions of dollars every year. When data is more accurate, companies are less likely to lose track of products or have faulty records.

In sum, drones are gradually becoming the brains and muscles of the logistics industry. Let’s embrace this breakthrough, rather than fearing it. With the right applications, drones can give us what we all want: freedom from drudgery, superior efficiency, and a brighter future.


About the author:

Benjamin Gordon is Managing Partner of Cambridge Capital, an investor in niche supply chain leaders. Benjamin is also Managing Partner of BG Strategic Advisors (BGSA), a leading investment banking firm focused on the transportation, logistics, and supply chain sector.


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