Drones hovering over freight market but not ready to land

In an interview with experts in the sector former Wall Street Journal reporter Liam Moloney explores whether new drones technology will disrupt the freight market seriously anytime soon.

Automation is the name of the game. Companies and new technology are focusing on drones, driverless vehicles and unmanned cargo vessels. No industry is more likely to be affected than the freight market, but experts don’t expect the sector to be seriously disrupted in the next decade as the new technology is forecast to make inroads in specific segments.

A special interest lies with drones, maybe because most people still associate them with military and surveillance operations—their original use. But commercial drones are here and as powerful business tools they offer the biggest growth opportunities.

Drones, also called an unmanned aerial vehicle (UAV) or unmanned aerial system (UAS), can be controlled remotely or be autonomous, which means regulated by software, together with sensors and other locating technology.

According to a study by consulting firm PwC on the commercial application of drone technology, the emerging global market for business services using drones is valued at more than $127 billion, with the top three sectors being infrastructure, agriculture and transport. In PwC’s 2016 megatrend report, it indicated drones as one of the eight technologies forecast to have an impact in the business world in coming years.

“We are now on the verge of passing from an academic debate on commercial drones to an operational one,” said Hans Heerkens of the University of Twente in the Netherlands and chairman of the Platform for Unmanned Cargo Aircraft (PUCA). “There’s a distinct trend in that direction.”

Start-ups, as well as large corporations, are trying to be a step ahead as they invest heavily on drone fleets to deliver cargo in an attempt to take a slice of the multi-trillion global freight market.

Drones “can revolutionise tomorrow’s air transport,” said Celine Hourcade, head of cargo transformation at IATA, noting how small drones offer new opportunities in the areas of first and last mile delivery of small packages, while bigger drones are under development and could break the isolation of communities where transport infrastructure doesn’t exist.

Experts say that the two factors a sender of goods effectively looks at when deciding the means of transportation is the price and the time it takes to deliver. Shipping by sea is the cheapest but slowest option, while air is the fastest but most expensive. Transporting freight by trains or trucks usually represents a middle ground.

Rather than replacing trucks, drones may offer interesting opportunities to complement them within larger freight systems, especially in specific segments of the market. There is also considerable interest and research in developing autonomous trucks in the future as a way to keep the sector competitive.

Corporate behemoths Amazon, DHL and Google, among others, are developing drones to deliver packages. Several manufacturers are designing large drones able to carry cargo from 200 kilograms to 100 metric tons.

Air cargo is expected to grow to $6.2 trillion in goods value this year from the roughly $6 trillion in 2017, when it represented 35% of global trade by value, according to IATA.

While volumes of goods transported by air represent about 1% -- a puny figure.-- of total freight by tonnage, as the IATA figures indicate they are significant when based on value. A clear reminder why so many are focusing on drones.

Saint Leo University Polling Institute found almost half of U.S respondents strongly disagreed with drone deliveries in 2016, while only 12% agreed strongly they would be open to the possibility. Two years earlier, a Pew Research Center poll found 63% of Americans thought it would be a change for the worse if personal and commercial drones were given permission to fly through most U.S. airspace.

There is still considerable work to enlist the general public to the idea of large-scale commercial drones. Most people are apprehensive with the idea of them swarming the skies over their heads. They want technology preventing drones from falling and causing fatalities or injuries, have the capacity to land safely in the case of need, as well as avoid collisions with other aircrafts or objects such as electricity lines.

Safety over commercial drones is the number one priority for governments, regulators and transport industry. The safe integration of drones into airspace is paramount, which means a sea of trials and tests will be required to convince the skeptics. That is why, for example, regulators won’t allow drones to fly beyond visual line of sight, which means drones pilots actually need to see the drone they are controlling, making the technology not really viable for a commercial purpose.

“Safety concerns are enormous and regulators are extremely cautious with unleashing drone operations,” said Valentin Polishchuk, senior lecturer in Air Transportation Communications and Transport Systems at Sweden’s Linköping University. “Regulators allow very low volume currently, trying to be on the safe side.”

Another important challenge is to protect drones from cyber-attacks as they will be at risk of being used as potential vehicle of an attack. Amid today’s terrorism fears, this is no small matter.

Where commercial drones appear to offer the biggest business opportunities in the short term is the last mile segment, delivery in remote geographical areas with poor or insufficient infrastructure, or particular sectors such as delivering valuable or urgently-needed goods where the extra fee isn’t an issue, said experts.

A clear advantage of the sector of the last mile, which is the final part of the delivery of the good to the customer, is clear from the fact that the vast majority of Amazon’s deliveries weigh less than 2.3 kilograms -- light packages easy to carry by most commercial drones. A 2016 report from consultancy firm McKinsey & Co. on the last mile predicts that drones and autonomous vehicles are set to deliver 80% of parcels to consumers in the future.

Potential commercial and cargo markets include areas in Africa and China that lack major infrastructure but that want to ship their goods to foreign markets.

A study by SESAR Joint Undertaking, which is an initiative of the European Commission aimed at modernizing the European air traffic management system, expects drone deliveries will initially be available in geographical areas with very low accessibility and produce new growth rather than replacing surface deliveries.

The main policy concerns regarding freight drones, beyond the safety and security of vehicles and airspace management systems, are energy consumption, related carbon emissions and the impact on the industry workforce. Other environmental impacts include noise, visual amenity, damage to wildlife and the effects on land use values close to droneports.

Another complication on the list is the special training needed for drone pilots, said aviation experts, noting how these pilots won’t be able to use four out of the five senses their airplane counterparts have while flying. This is especially true if in the future a few of pilots will be responsible for a large number of drones.

Cargo “drones will first have to prove themselves in countries with large rural areas and with poor infrastructure before moving on to more developed markets such as the U.S. and Europe,” said Professor Heerkens of the University of Twente.

There are still enormous number of regulatory, legal and technological loops to go through before commercial drones can become a serious part of the freight business. However, make no mistake about it: drones are not going to go away and are likely to represent a major challenge to the industry in coming decades.