Regulating the Drone-Friendly Skies

According to research by the University of Washington’s Urban Freight Lab covered by the Wall Street Journal, the “last 50 feet” of the supply chain accounts for 20 to 50 percent of transportation costs. In addition, 28 percent of a driver’s time during delivery is spent just searching for a parking spot.

We all know that the final mile is expensive, but when you look at numbers like those, it is hard not to see a service primed for disruption.

Even so, it takes a true innovator to look at a challenge like residential delivery and say, “I’ve got it! We’ll drop their purchases from the sky using a drone!”

A number of retailers and small parcel providers - including Walmart, Amazon, UPS, and FedEx - are experimenting with drones and other autonomous aircraft for logistics. If you are interested in finding out who has made the decision to ‘build’ and who has decided to ‘buy,’ read this article on Art of Procurement.

The eCommerce Drone Race Begins

In 2013, Amazon's then-CEO Jeff Bezos gave 60 Minutes host Charlie Rose an up close look at the company’s “octocopter” drones. At the time, Amazon was hoping to have their Prime Air unit fully operational within 5 years - although Bezos admitted at the time that it was an aggressive timeline.

He knew that regulations would be every bit as much of an issue as aircraft innovation and production or customer adoption. Those regulations not only hold back the spread of drone delivery areas, they increase the cost anywhere it is permitted.

Depending on the certification they receive, the Federal Aviation Administration (FAA) stipulates that operators can only handle one drone at a time. As a result, labor represents up to 95 percent of the total cost of providing drone delivery.?

In a January 2023 post on McKinsey’s Future of Air Mobility blog, subject matter experts predict that drone operators will have to manage 20 drones simultaneously to bring the cost of a single package delivery to $1.50 - $2. From their perspective, that is the price point where drones will be positioned for wide scale success. The same article also estimates that each drone delivery costs around $13.99 today.?

When we consider the fact that Walmart is currently charging just $3.99 per residential delivery, and that most of those deliveries involve low-margin items, that math does not work long term.

Drones are Not Modified Airplanes

While regulations are often critical to ensuring public safety, drone regulations are quirkier than most. In fact, they are not really drone regulations at all, but rather individually modified airplane regulations. For instance, drones are not required to carry manuals on board to be compliant with FAA regulations. (Because who exactly would read them?)?

The certification that each drone operator decides to pursue dictates how they can put the drones into use, how much it will cost them to deliver, and what service area they are able to cover.

Part 135 FAA certification “is the only path for small drones to carry the property of another for compensation beyond visual line of sight.” Companies certified under this regulation include Wing (a division of Alphabet), UPS Flight Forward, Amazon, Zipline, and Flytrex.

UPS Flight Forward, a wholly owned subsidiary of UPS, became the first company to receive the FAA’s full Part 135 Standard certification on October 1, 2019, allowing them to operate a fully remote-controlled domestic drone delivery network.?Over three years later, consumers see no sign of that capability.

Part FAA 107 certification is more limited. It requires that a drone be within line of sight of the operator at all times. It is currently being used just to perfect drone utilization, as it isn’t practical to have an operator driving behind the drone as it flies. At that point, the drone operator could just hand deliver the package.

As more operators and drones take to the skies, the regulatory and safety challenges are bound to grow. A crowded airspace will naturally lead to an increase in mid-air collisions, damaging goods and representing a threat to the people and property below.

Drone Regulatory Readiness

Becca Trate is a policy analyst focused on innovation in retail at the Center for Data Innovation. In a 2023 article, she pointed out some of the oddities around how drone regulation is managed federally and how this is clipping the wings of drone networks nationwide. “Drone delivery should be taking off, but the Federal Aviation Administration’s (FAA) continued use of one-off waivers for operating delivery drones, instead of comprehensive regulations, have grounded delivery drone ambitions across the United States,” she wrote.

Certifications and waivers are granted to one operator at a time rather than providing overarching regulations and expecting operators to comply with them. It is early days to be sure, but this isn’t a scalable model. Permission is given selectively, and nearly everything is an exception that needs to be addressed by the FAA.

The system as a whole is not structured to allow drone usage to scale quickly. In fact, given the speed of most federal government approval processes, it almost works against it.

In addition to slow federal approvals, the general friendliness towards drones varies state by state. This creates an additional layer of roadblocks for operators and shippers alike.

FreightWaves recently reported on work done by The Mercatus Center, a research center at George Mason University. They have started assigning “drone readiness” scores by state. Those scores are based upon six factors, most of which have some regulatory connection.

The top ranked states for drone readiness are Oklahoma, North Dakota, Arkansas, Arizona, and Minnesota. Interestingly, of those states, only Arkansas and Arizona are currently included in Walmart’s residential drone delivery program. Clearly consumer demographics enter into the decision as well.

Walmart offers drone delivery in Arizona, Arkansas, Florida, Texas, Utah, Virginia, and North Carolina. Some states that are less drone-friendly offer the commercial incentive required for retailers to overcome the challenge. Others that are drone friendly (or ready) don’t have the residential concentration necessary for retail profitability.

Despite the challenges, operators and shippers continue innovating. As costs come down and regulations are standardized, we may just see drones and other autonomous craft playing a dominant role in final mile delivery.

As Jeff Bezos said while unveiling Amazon’s octocopter on 60 Minutes 10 years ago, “It will work, and it will happen, and it's gonna be a lot of fun."?

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