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News & Notes

The Compelling Economics of Drone Delivery

It all comes down to dollars and cents

May 4, 2017

While speed and novelty are certainly seductive elements of drone delivery, the real draw for logistics companies is, of course, cost savings. If drone delivery doesn’t save the company money, it’s not going to use drones. Simple as that. And when it comes to the real numbers behind drone delivery, the economics are compelling.

A new report by Skylark Drone Research presents an in-depth look into the many economic factors in drone delivery. Its general premise is made clear on the first page: “Companies in the package delivery market will either need to adopt this new disruptive technology or face declining market power in the face of a new industry model.”

The Skylark report factors in various operational costs — batteries make up nearly half of delivery drones' anticipated cost of operation.

Skylark Drone Research
Ready to disrupt?

There have been arguments aplenty as to whether or not drone delivery will happen, and if so, how soon. The Skylark report wastes no time quibbling with such questions — it assumes that based on the dramatic cost-savings provided to logistics companies, there’s no doubt drones are a part of the delivery future.

The report states that drone delivery has both lower capital and lower operating costs than vehicle delivery. In terms of operational costs, for FedEx’s average last-mile delivery, costs are about $2.72. Amazon’s last-mile cost with USPS is $2.50.

In order for drones to be truly disruptive, they must come in lower than $2.50 ― and they do. The total hourly operating costs of delivery drones come in at $0.94. This takes into consideration multiple variables, as seen in the table at right. The data for calculating these costs came directly from a sampling of 25 commercial UAS operators.

The average cost of operating a delivery drone varies, especially when considering the cost of the vehicle itself. Using the baseline operational cost of $0.94, researchers calculated how much a drone should cost ― just for the vehicle ― and how often each drone would have to fly to be economically viable. They found that drones costing less than $2,000 per airframe results in the most economically viable deliveries. You can see their findings in the table below.

This table displays the all-inclusive cost per delivery, based on the drone platform's price, how often it flies, and all operational costs — the delivery costs that are less than traditional ground methods are listed in red. 

Skylark Drone Research
Start making cents

Assuming the drone platform costs less than $2,000 and flies at least 50 hours per week, each delivery would cost $0.76 less than traditional ground delivery methods. Considering that 100 million products are sold online daily, that $0.76 savings would add up fast — really fast.

“For a company that sells millions of products online daily, the economics are hard to ignore — which is why companies like Walmart and Amazon are at the forefront of this effort,” the report explains.

How much will these major retailers be saving? Taking the midpoint of its most optimistic and pessimistic projections, logistics companies will save between $2 billion to $10 billion dollars a year. No big deal.
“New regulatory formulas, relying on science and engineering, rather than outdated codifications of ancient technology need to be put in place."
Drone domination

Let’s say these numbers are compelling enough to drive legislators to pave the regulatory way for drone deliveries. If all the barriers currently stopping drone delivery were lowered in the next few years, how quickly might we see these technologies go mainstream?

Basing the adoption of delivery drones on the growth pattern of other truly disruptive technologies like cell phones and computers, it would take roughly 10 years for drone deliveries to start making it into the mainstream. So while some members the drone industry are aggressively working toward drone delivery, the soonest we’ll probably see a strong drone delivery ecosystem is around 2030 ― or beyond.

Even then, the report acknowledges that drones will not fully replace ground deliveries. In some cases, drone deliveries just aren’t practical or cost-efficient. But that doesn’t affect the underlying fact that drones can save large companies huge amounts of money — despite hurdles like apartment buildings, airports, and long-distance deliveries.

So what will get us to a drone-delivery future sooner rather than later? The report highlights three factors: flights beyond visual line-of-sight, fully autonomous operations, and a new type of regulatory framework.

“New regulatory formulas, relying on science and engineering, rather than outdated codifications of ancient technology need to be put in place. Engineers and scientists are needed. Regulations based on data must be the new norm,” the report concludes.

Interested in learning more about the wild world of drone deliveries? We’ve got plenty of stories for you. And keep an eye out for future reports from Skylark on the many other questions surrounding drone delivery.
Featured image: Flirtey