According to a UPS press release on February 21, it appears that the logistics giant is already ahead of Amazon in the race to make drone delivery of packages a reality. The press release revealed that UPS is working with the Workhorse Group to test truck-launched delivery drones in Florida.
According to UPS SVP Global Engineering and Sustainability, Mark Wallace:
“This test is different than anything we’ve done with drones so far. It has implications for future deliveries, especially in rural locations where our package cars often have to travel miles to make a single delivery. Imagine a triangular delivery route where the stops are miles apart by road. Sending a drone from a package car to make just one of those deliveries can reduce costly miles driven. This is a big step toward bolstering efficiency in our network and reducing our emissions at the same time.”
UPS is already far more efficient than FedEx, which can be seen from the difference in their operating margins. But how efficient can drone delivery of parcels actually make them? To get a perspective on that, UPS gives us an example. According to the company, using their ORION (On-Road Integrated Optimization Navigation) routing software, a savings of $50 million can be achieved by reducing just one mile per day per driver over the period of one year.
Since rural deliveries are the most expensive type, it’s clear that this is the segment UPS wants to address as a matter of urgency. Their e-commerce related B2C shipments are already on the rise, and it’s taking a bite out of their bottom line even though it benefits them at the top line.
As a result, UPS wants to bring even more efficiency into their system and still be able to make 10%+ operating margins despite the ever-increasing volume in B2C consumer deliveries.
Of note is the fact that Workhorse, their partner in this project, has built the delivery drones as well as the UPS package car for the purpose of the test, and the car itself is an electric vehicle.
Using EVs is not only a long-term sustainability move, but can also bring additional savings to their fleet. Here’s an interesting graph from the Idaho National Laboratory’s Advanced Vehicle Testing Activity report:
Depending on the efficiency of the electric vehicle in question, it is clearly more efficient than ICE (internal combustion engine) vehicles. That could add up to billions of dollars in savings for UPS over a period of a year.
The UPS-Workhorse project is still in its testing phase, but UPS will be looking to deploy the system as soon as it can in order to take advantage of the efficiencies offered by such a system.
Will they beat Amazon out of the starting gate? That’s a difficult question to answer because it involves a lot of regulatory hoops and hurdles, not to mention the high cost of deploying such a system nationwide and integrating it with their existing ground and express shipping channels.
As such, when this system is eventually deployed, we foresee a gradual rollout to certain cities in specific states. Hopefully, it won’t be more than a year or two before they’re ready to take this live. Incidentally, UPS currently one of 35 companies selected by the FAA for its drone advisory committee.
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