The Amazon.com Air Force Is Coming To A Town Near You
Amazon has been the poster child for the eCommerce world for some time now, and it continues to enter new markets and come to dominate many of them over time. It all started with selling books (remember that?), and now it has transitioned to pretty much anything and everything possible that can be easily shipped. Amazon has also moved into selling Prime membership subscriptions, publishing, music, videos, online payments, cloud storage, and other cutting edge endeavors.
While these newer areas may eventually overtake its bread and butter online retail store, for now, eCommerce is still the mainstay. But the challenge facing Amazon is that the cost to ship out the goods it sells is increasing, despite the near-continuous attention to cost-cutting and use of automation, as illustrated in the chart from Statista.
There are many reasons for this, but one is the increased popularity of its Prime membership program, which has an estimated 103 million U.S. members according to Consumer Intelligence Research Partners (CIRP). And the CIRP estimates that these Prime members spend ~$1,400 on average at Amazon each year vs. the ~$600 non-Prime Amazon shopper. That is a lot of packages to process and ship, and many of these are one or two-day shipping, hence the increased shipping and logistics expenditures.
Which brings us to the expenses related to moving all of these must-have goods from a warehouse to your doorstep. Amazon spent $21.7B on shipping in 2017, which consist of handling and sorting, delivery center expenses, and air/ground transportation costs. This amount is almost double the $11.5B it spent on shipping back in 2015. Amazon and its main competitors have ramped up efforts to decrease the shipping time to online shoppers, and this has forced online retailers to expand its use of air cargo beyond using the USPS, FedEx, UPS, etc.
Amazon has been quite proud of its vastly expanding regional warehouses, and their increased use of robotics and automation to decrease the number of people needed and the time necessary to process orders. But, these warehouses need to be continuously re-supplied with fresh goods to ship to consumers. This is where a captive freight airline capability comes in, and reduces its cost to 3rd parties related to shipping.
Amazon has been setting up outsourced entities for local delivery, developing drone delivery services, and expanding its captive freight airline. This development will affect the entire freight and package delivery system today since Amazon is the largest eCommerce store in the USA.
The Birth of Amazon Air
In 2015, Amazon Air was launched, and was initially named Amazon Prime Air (more on this why this changed later), and is the cargo airline brand name for Amazon’s captive freight delivery service based in Hebron, Kentucky, near Cincinnati, Ohio. Amazon operates this delivery service using its own branded aircraft operated by Air Transport International, ABX Air, Atlas Air, and Southern Air, with the primary hub being the Cincinnati/Northern Kentucky International Airport (CVG). As a cool side note, the original code name used was Project Aerosmith (no word on why Led Zeppelin was not used).
In a nutshell, Amazon purchased ~20% of Air Transport International’s stock and began scheduled operations with 20 Boeing 767 aircraft in March 2016. The next year, Amazon purchased a 920-acre facility at CVG and started work on a three-million-square-foot sorting facility with parking space for over 100 cargo aircraft. Recently, Amazon announced that it was expanding this facility to be a $1.5B air cargo hub, on top of other hubs it was building out across the country.
It has steadily added more aircraft as point-to-point transit routes across the USA were added, and more leased aircraft will be added in the next year.
In 2017, this venture was renamed Amazon Air, and the new drone-based delivery service kept the name of Amazon Prime Air.
The Drone-based Delivery Force Takes to the Skies (Kinda)
The concept for this idea was announced in late 2013 and was formalized in 2016. It is still in development, with trials being performed outside of the USA.
Amazon’s CEO, Jeff Bezos, laid out plans in December 2013 that small UAVs would be used to deliver packages to customers within 30 minutes of ordering (with some caveats: the package needed to be 5 lbs. or less, fit within a certain size, and be within a 10-mile radius of a drone-capable Amazon order fulfillment center). This has not happened yet for a multitude of reasons. But Amazon is moving forward and is determined to make this a reality.
The core concept of operating a drone safely in a populated area is much more complicated than it seems. Amazon is developing its own Amazon air traffic management system. It is planning on operating these drones below an altitude of 400 feet for safety reasons, and that it needs to abide by stringent rules here in the USA. The general public is still very concerned about the safety of having remotely-controlled drones flying over them for good reason.
Per FAA guidelines, drones will fly at low altitudes (below 400 feet). Keep in mind that that unlike autonomous cars and trucks, there are no fixed roads or objects for sensors to identify to use in navigating around, so GPS and wireless communications are the only means by which a delivery UAV can be controlled (that is, until better autonomous systems are designed by which drones can self-navigate to a pre-determined destination, in the future). But all of this is only a bump in the road as development moves forward.
Other Are Ahead of Amazon
Other companies are further ahead than Amazon, such as Zipline, which is using drones to distribute blood and vaccines by drones in Rwanda and Ghana. This California-based company operates distribution centers around the planet with teams of local operators, and aims to “deliver medicine to those who need it most.” The company has an app (what else where you expecting?) that doctors use to place orders on-demand for any needed medicine. Delivery drones are loaded with the ordered products at Zipline’s distribution centers and are flown quickly to any destination, parachuting down the order from a fixed-wing drone (which does not land anywhere except at the distribution center). Deliveries are within 30 minutes, and Zipline claims to be able to support hundreds of deliveries per day, per distribution center, under all weather conditions. This is a great step forward for people in underdeveloped areas that need medical care and provides Amazon and other drone-delivery services with a blueprint for certain types of deliveries outside of urban areas.
Another notable competitor that is already flying as well as well is Swoop Aero from Australia. They are also concentrating on the medical services delivery market in underdeveloped areas such as Vanuatu, where three distribution hubs have been set up to provide on-demand healthcare at 33 villages across nine different islands. These drones land onsite, so take a different delivery approach than Zipline.
There are many other such companies already testing or flying delivery drones, and here is a very abbreviated sampling of the other companies which have announced themselves:
· Air Aid
· Ali Baba/Shanghai YTO Express
· Flirtey
· Flytrex
· FPS Distribution
· Healthcare Integrated Rescue Operation (HiRO)
· JD.com (China)
· Matternet (backed by Boeing, based in Switzerland, and working with UPS and others as well)
· Wing (part of Google’s parent company, Alphabet)
· WingCopter
Amazon Playing Catchup
Arguably, this is a typical situation for Amazon, since it enters markets after others create them and find ways to better manage and process operational aspects of such niches. In the USA, the current regulations require drones to fly no higher than 400 ft., limited to no faster than 100, and must remain within the pilot’s line of sight. This will change in time, as drone flight management systems evolve and can prove operational safety.
Previously, Amazon had indicated that it eventually intends to operate between 200 and 500 feet. Amazon has stated it plans to fly drones weighing up to 55 lb. within a ten-mile radius of its warehouses, at speeds up to 50 mph with packages weighing up to 5 lbs. (for now).
In 2017 Amazon filed for patents for “multi-level fulfillment center for unmanned aerial vehicles,” which resemble beehive-shaped buildings to support its drone fleet (refer to the beehive diagram). A multitude of these centers would be positioned throughout metropolitan centers around the world.
Amazon’s patent defines how these buildings would contain multi-storied platforms for drone landings and takeoffs. Safety mechanisms such as nets or foam would allow for malfunctioning drones would be designed in as well.
Amazon already has rather intelligent robotics and inventory management systems in its warehouses which would be adapted to support these multi-level structures (as opposed to one-story warehouses). One of the more exciting design ideas mentioned in the patent is to position drones at higher locations for take-off, not only save precious power but also to minimize some of the noise from the drone’s rotors to those that may live nearby.
These drone beehives would need to be linked to the ‘small-village-size’ warehouse centers that Amazon currently operates outside of major cities, probably outside of the drone’s range (for now). This means that those autonomous trucks that are coming soon to a road near you may be a delivery vehicle to supply the beehive centers, and more robots with a handful of human overlords will probably manage this.
Finally…
Obviously, there is much to work out technically, politically and financially with this approach. There will be much resistance in heavily-congested urban centers to having beehives of drones buzzing around, and quite possibly to autonomous vehicles making deliveries to as well. But we need to start somewhere, and the drone invasion will continue.
Amazon will need further work to better integrate its cargo freight aircraft with regional warehouse centers, and then into beehive drone centers. If it eventually succeeds in doing so, it may be able to take over the US Postal Service and truly compete with FedEx, UPS and other such companies on a grander scale for the B2B market a well.
Some of this may have seemed like science fiction as recently as ten years ago, but, now, it nearly a reality by combining existing aviation platforms with newer ones.
