2019 Trends: 5 Practical Uses for Drones in the Supply Chain
William Craig, CPA – Senior Manager – Market Research
In the spring of 2019, residents of the remote First Nation Island in Northern Ontario will begin receiving packages delivered using drones. Toronto-based company, Drone Delivery Canada (DDC), will transport supplies, food, medicine and mail from the mainland town of Moosonee (BBC), using drones that can handle payloads up to 11 lbs. Although the island can be accessed via the Moose River by boat in the summer and an ice road in the winter, it is difficult to access in the spring and fall during the freeze-up/ break-up of the river (CBC). After planning and testing for 2 years, the service is now approved for commercial use.
It’s one thing transporting supplies, it’s whole other challenge when Boeing announces a prototype for an autonomous flying taxi (video of prototype). Both Boeing and Bell have partnered with Uber, as Uber is proposing to launch its air taxi service (Uber Air) by 2023! The city Dubai, which wants to be the first city in the world to offer a flying taxi service, has staged a maiden voyage of an autonomous, two-seater, 18-rotor flying taxi made by German firm Volocopter. With that said, how far are we from autonomous or remote-controlled commercial planes?
Today, drones or unmanned aerial vehicles (UAV’s) are more commonly seen in use by the military, media, photography, as well as by hobbyists. Although the possibilities for drone use in the supply chain are endless, their use so far has been somewhat limited in real-world commercial application, but the times are changing!
The FAA is projecting 2.85 million small drones in use by 2022 and 450,000 of them will be used for commercial purposes (Deloitte), while Goldman Sachs forecasts a $100B market for drones by 2020. With numerous pilot projects (or should we say pilotless) underway, the use of UAV’s in the following areas is not far off; farming, delivery, construction, energy, warehouses, inspections, environmental, transportation, internet access, disaster relief, security, law enforcement, search and rescue, healthcare, real estate and more.
Let’s discuss some of major application areas in the supply chain.
Researchers at MIT have developed small, lightweight and safe drones, called Rfly, that can fly around large warehouses, distribution centers and yards reading inventory RFID tags for continuous monitoring of inventory, preventing inventory mismatches, and determining item locations. It is currently being tested at a retailer in Massachusetts.
Walmart has put similar drones through trials in its warehouses. The Walmart autonomous drones can scan inventory in one hour that would normally require 50 humans. With its 150-plus warehouses, the savings could be tremendous for Walmart. Drones could also be used to transport boxes around the warehouse or distribution center, as well as perform other tasks.
Companies like PINC, now provides inventory and yard management solutions using drones that leverage IoT sensors, passive RFID’s, GPS, optical, cellular, and other sensors helping companies optimize their supply chain execution.
Last Mile Delivery
FlyTrex has started delivering groceries, clothing, medication and other items to the people of Iceland. Although the delivery service is only to specific drop-off zones authorized by the Icelandic Transport Authority, they do anticipate delivering to customer backyards in the near future. Wing, the Alphabet-owned drone delivery startup will launch a pilot in Finland, to deliver packages in Helsinki starting in the spring of 2019.
Amazon Prime Air made its first test delivery of an Amazon Fire TV to a customer in Cambridge, England in late 2016, although it has yet to launch commercially to date. Dominos, DHL Express, UPS, Alphabet, and other companies have similar pilot and test programs in place. UPS is testing drone deliveries, using the top of its vans as a mini-helipad and estimates cutting just one mile from its delivery routes could save $50 million annually (Business Insider).
Before commercial drone delivery is feasible on a broader scale; regulatory, safety, security, privacy, noise and other challenges, still need to be addressed, especially in large urban areas (Deloitte). In May 2018, 10 states were selected to participate in the Federal Aviation Administration’s 3-year commercial pilot program, to test the future of drone delivery in the United States with the help of private companies; including Apple, Uber, FedEx, Alphabet, Intel, Microsoft, Qualcomm, Zipline, Flirtey and PrecisionHawk.
Over the next five years, Goldman Sacks predicts the agricultural sector to be the largest user of drone technology in the US, while research company Markets and Markets estimates the agricultural drone market will grow at an average rate of 30% through 2022.
According to PwC, the world’s population is projected to reach 9 billion by 2050, with agricultural consumption increasing by nearly 70%. With this increased demand forecasted, improving crop yields is critical. With sensors, cameras, GPS on board, drones can spot area of insect infestation, areas needing watering, sections needing fertilizer, failing plants, and other problem areas and then allow farmers to specifically target those areas for treatment, improving crop yields (National Geographic) while reducing costs.
The Construction Industry is the fastest growing industry sector deploying drones for commercial use, surging 239% over the past year (DroneDeploy), followed by mining (198%), agriculture (172%), surveying (171%) and real estate (118%).
The major uses for drones in construction include surveying, progress tracking, inspections, security, safety, risk mitigation, bid processing, quality control, etc. Along with these uses comes major benefits. Statistics by DroneDeploy, indicate a 55% increase in safety, 61% more accurate measurements and a 65% improvement in communications for construction project deploying their drone technology.
PBS Engineering and Environmental, Inc. deployed drones to provide a topographical survey of a road along the Snake River in Asotin County, WA, in order to keep workers out of harm’s way. Aside from being incredibly more efficient than traditional survey methods, it also kept workers safe during a rock slide on the road, while they were onsite.
Drone technology has endless applications for inspections, monitoring, providing estimates, handling insurance claims, etc. for global infrastructure. Think of building, bridges, tunnels, towers, factories, powerplants, airplanes, power lines, pipelines, windfarms and more.
Xcel Energy has recently received approval by the Federal Aviation Administration (FAA) for a pilot project to use drones to conduct utility inspections of transmission lines and wind farms in Colorado. This will be the first program, where drones do not need to be in the direct line of site of the ground operators.
Xcel is hoping to expand the operations later this year to New Mexico, where they have over $1B in transmission lines. Not only are UAV’s safer and more reliable than traditional methods, they are 80% cheaper than helicopters and 60% cheaper than ground crews on average.
Trinity Services and Consulting, LLC (TSC) works with Oil & Gas companies to monitor and inspect pipelines using drones, instead of relying on ground crews and manned flights. Using drones, they have been able to reduce potential clean-up costs by 90% for their clients.
Drones are also being used for roof inspections and estimates, providing many benefits over manual methods, including:
- Increased safety
- Provide more in-depth information
- More efficient
- Less costly
Allstate has reduced the time it takes to issue a repair estimate to as little as 4.5 days after a claim is filed using drone technology.
Although the commercial application of drones appears bright, there are still some challenges to overcome until we see their wide scale deployment, including current FAA regulations, which restricts drone usage to:
- Weight of 55 lbs. or less including cargo
- Fly within visual line-of-sight of ground operator
- Fly at or below 400 feet above ground level
- Fly during daylight or civil twilight
- Fly at or under 100 mph
Other risks include casualty and liability regulations, privacy issues, safety concerns, hacking, drone operational failures, and more. Even with these concerns, regulations and new solutions are constantly evolving.
The benefits of drones in the supply chain are immense. In fact, commercial drones could save the insurance industry $7B alone each year, according to Deloitte. Goldman Sachs estimates the total drone market to reach $100 billion by 2020, while McKinsey estimates commercial drones will have an annual positive impact of $31B-$46B on GDP (Forbes) by 2026.
Until next month!
Meet the Author
William Craig, CPA – Senior Manager – Market Research