Drone Delivery: Early Edge For Alphabet And UPS, Say Analysts

Holiday gifts could get delivered by drones to homes next year.

The race for development of commercial drone delivery systems and to make it a reality is hotting up with biggest players in logistics and packages in the world trying to outdo each other in this area.

And “UPS and Alphabet have the early lead” on Amazon, FedEx and others, says Loop Capital Markets.

“The emerging US drone operators are upgrading from constrictive drone-specific regulatory frameworks and essentially shoehorning their unmanned vehicles into more flexible and expansive FAA rule sets,” Loop Capital Markets wrote in a note to investors last month.

A race to win over regulatory approval and consequently to roll out commercial drone delivery networks across various markets is currently under way between players that include a mix of giant e-commerce, logistics and technology companies.

This huge interest of the companies is because “the most inefficient and expensive component of the industry supply chain is the last mile delivery” in the$3 trillion global goods transportation industry, said BMO Capital Markets last week.

The last mile connectivity in a delivery process is the very last stage of a deliver that involves delivering a package from the distribution center to its final destination. Anything between 50 per cent and 60 per cent of total freight costs is accounted for by the last mile costs, according to the estimates of BMO. However the firm also noted that one of the major portions of last mile is the act of delivering small packages and that “is the most profitable segment of the global goods transportation industry.”

Loop says “everyone is watching” Amazon because of the lucrative potential of a last mile drone network. Amazon could be saving up to $1.2 billion per year if it was able to use a fleet of 100,000 drones, the firm estimated.

“Drone delivery would be a significant cost savings and incremental revenue driver for Amazon,” Loop said.

The drone delivery plans of Amazon were announced by its founder Jeff Bezos, Loop highlighted and added that the plan “was originally met with widespread derision”. However Loop believed that it would be sooner than later that Amazon would be able to realize the vision of Bezos.

“We believe widespread drone delivery is rapidly moving toward becoming a reality,” Bezos said.

However a first mover advantage and international experience is makes Alphabet’s Wing unit a notable player in the industry Loop said even though Amazon is one of the most visible programs. Alphabet’s Wing unit is already working together with some retailers in the United States, Australia and Finland. The first commercial drone delivery was completed by Wing in October in Virginia. However limited FAA approval to delivery small package in a handful of Virginia cities has been given to Wing.

And UPS, the other company that has an advantage in the field according to Loop, is also undertaking commercial flights and transported  blood samples to a hospital campus in North Carolina in September.

But BMO said “the rapid rise in residential deliveries” will keep capital spending about historical averages, as companies seek to invest in everything from drone delivery to automation.

(Adapted from CNBC.com)

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