Sunday, June 25, 2017

Think Amazon is leading in drone delivery? Think again!

Posted on 05/03/17 by Muyuan Li

In a 2013 interview of Amazon's Jeff Bezos by CBS' Charlie Rose, Bezos launched drone delivery by e-commerce companies by announcing the new Amazon Prime Air - and demonstrating a delivery system designed to get packages to customers by drone.

It was a terrific scoop for CBS and a lot of fun for viewers and media alike. The story went viral as did the YouTube video of the show - 16 million people viewed this video. It was the beginning of a new era in speedy delivery... and also the beginning of a lot of problems. New FAA regulations for U.S. drone use require commercial drones to stay within sight of pilots, carry a payload of less than 55 pounds, and require operators to pass a test every two years. The line of sight provision makes it difficult for drones to fly long distances.

Amazon is not the only player in aerial deliveries. It's happening all around the world. In China, JD.com, which is one of the top 5 largest e-commerce retailers (Alibaba and JD.com make up 47% and 20% of the total market, respectively), publicly launched its drone delivery service in 2016 while Amazon was fighting the FAA flight limitations in the U.S. and was testing in the UK and other countries where the regulations were less stringent. These same regulations inhibit commercial drones from flying over anybody that is not involved in the transaction, a Catch-22 for drone delivery because the drones are most likely to be unmanned and will fly over a rather long distance.

JD.com is a Chinese electronic commerce company headquartered in Beijing, China. They started a trial drone delivery program in rural China, testing drop-offs outside of Beijing and in Jiangsu, Guangxi, and Sichuan. On Bachelor's Day, November 11, 2016, also called Singles Day, which is one of the biggest sales days in the year amassing $17.6 billion in sales over the 24-hour period, JD officially launched their drone delivery program.

Alibaba hasn’t announced a drone-based rural delivery program although they have used the drones of a delivery company, Yuantong, to deliver products for promotional events. In addition, Chinese delivery company SF Express has started trials on drone delivery, although they will not provide service to customers but only for deliveries between the company’s own branches over China.

JD’s drone delivery’s goal is to deliver with drones from cities to rural areas. JD designed its own aircraft, and there are five different types of drones that are used depending on the size of the parcel.

The delivery process goes like this: First, the customer orders product and asks for delivery through JD. Second, JD sends an unmanned drone to a landing pad that is managed by a delivery man living in the village where the customer resides. Lastly, the delivery man delivers to different houses in the village. The drones are unmanned and fly along fixed routes set ahead. JD announced in April 2017 that the company will build 150 drone delivery stations in Sichuan Province. The cost of delivery is expected to go down more than 70%, according to JD CEO Liu Qiangdong.

Bottom Line:

There are many reasons why JD chose rural areas as major service areas instead of cities. First, it is easier to operate in rural areas because the cities are too dense for drone operations. Most people live in apartments so it would be hard for JD to set a location for each customer. Second, the regulations in rural areas are more flexible than in cities such as Beijing. Third, rural areas are often difficult and expensive to get to by other means. Finally it is expected that drone deliveries to rural areas will cut back JD.com's overall spending on logistics. The system will lower delivery costs by as much as 50% to under $0.08 per package.

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