Pie in the Sky: can Africa help UPS in the Game of Drones?
UPS invested in last mile drone delivery and innovative partnerships in Rwanda and Tanzania, but is that enough to leapfrog Amazon and Google? Or will they remain a fast follower?
In the past years, heightened customer expectations on e-commerce on-demand delivery combined with robotics innovations gave rise to futuristic possibilities of parcel delivery by drones, causing a paradigm shift in last mile distribution and value proposition of traditional logistics providers.
McKinsey envisions autonomous vehicles and drones to be the “future of last mile” contributing ~80% of all consumer delivery . E-commerce leaders are investing heavily to automate and control the costliest and most inefficient “last-mile” delivery and vertically integrate to reduce reliance on 3PL. Amazon announced drone delivery service Prime Air in 2013 when Jeff Bezos made the customer promise of 30-minute delivery  to be realized in 4-5 years, and has since filed multiple patents including “beehive” fulfillment centers (Exhibit 1)  and opened a research facility in Paris. Walmart also migrated its battle with Amazon to the skies by patenting an unmanned “airborne warehouse” .
Most 3PL players are not proactively addressing these challenges. Amazon, the clear first-mover, piloted Prime Air delivery in the UK in 2016 and debuted customer delivery in the US three months later, showcasing capabilities and commitment to change the game. Meanwhile, most logistics players are still playing catch-up in R&D, while some like FedEx remain hesitant due to regulatory uncertainty .
Among global logistics leaders, UPS has the highest potential to lead in this rivalry. Like Amazon, UPS invested in R&D and patents, and partnered with drone developer Workhorse Group  to ramp up know-how and integrate drones into their delivery network. In Feb 2017, they successfully tested a drone launch from a UPS truck for home delivery (Exhibit 2). Albeit a reactive move, this was UPS’ first milestone in drone deliveries.
A remarkable medium-term strategic move was UPS’ partnership with Zipline (Exhibit 3) , California-based drone startup, to deliver blood and critical medical supplies to remote hospitals in Rwanda. Zipline’s “sky ambulances” deliver blood within 30 minutes of emergency calls, drastically resolving Africa’s “stock out” problems by making access possible to rural areas with close to no infrastructure. Since 2016, they have transported 20% of Rwanda’s blood supply and expanded to Tanzania where they aim at 2,000 daily deliveries from four distribution centers, the world’s largest drone delivery network. Partnering closely with local African governments enabled speedy regulatory adaptation and leeway for technological experiments, such as air traffic control and data collection.
Exhibit 3 Zipline in Rwanda
Neither Amazon nor Google has come close to such large-scale implementation of commercial drone delivery, and this positions UPS as the first success story globally, earning them not only great publicity and social impact but also opportunities to push boundaries and build capabilities to manage complexities of a national drone network from infrastructure to analytics, as well as navigating the regulatory and stakeholder landscape.
To take these initiatives further and gain competitive advantage, I recommend UPS management to take the following actions –
- Insert themselves in regulatory decision-making
Google and Amazon lobbied to be a part of the Unmanned Aerial Systems Registration Task Force  under main regulator Federal Aviation Administration (FAA), which convenes government agencies and industry leaders to shape regulations. The task force currently has no representation of the logistics sector, and UPS should get a seat at the table to gain first-hand knowledge and influence on regulatory evolution on critical questions such as drone registration and data privacy.
- Expand African partnerships to e-commerce as testing ground for technological and regulatory breakthrough
UPS needs to innovate quickly to gain true advantage instead of staying a fast follower. Building on the Zipline collaboration, UPS should seek partnerships with e-commerce players like Jumia, Africa’s #1 marketplace, to offer last mile drone delivery. They should prioritize small high-value packages like electronics and remote areas where drones can add most value. With a favorable regulatory landscape and receptive customer base, Africa is an ideal testing ground. For instance, it is illegal in the US to fly autonomous drones outside human sight, while in Africa there are no such restrictions. Co-investing in R&D with governments and retailers will create a win-win to all stakeholders and enable UPS to become a true disruptor.
- Bring tested approaches home
Instead of waiting for regulations and consumer acceptance to mature in the US, UPS should accelerate penetration in emerging markets. Track record in shaping regulations in Africa will give them credibility in lobbying with US regulators, and when time is ripe they can replicate the end-to-end solution in urban markets.
Beyond fighting to win share in the “pie in the sky”, UPS should grow the pie by entering emerging markets and building differentiated offerings as a first-mover.
With this nascent space still evolving on the daily, questions remain – Will drone delivery eventually take off? How applicable is UPS’ partnership model in developed markets? Does UPS stand a chance to fly past Amazon in the game of drones?
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 McKinsey & Company Travel, Transport & Logistics industry article https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/how-customer-demands-are-reshaping-last-mile-delivery
 Jeff Bezos “60 minutes” interview to reveal “big surprise” of Prime Air, Dec 2013
 Amazon’s “beehive” fulfillment centers
 Walmart Wants to Take on Amazon With Flying Warehouses
 FedEx Bets on Automation as It Prepares to Fend Off Uber and Amazon https://www.technologyreview.com/s/602896/fedex-bets-on-automation-as-it-prepares-to-fend-off-uber-and-amazon/
 UPS Pressroom: UPS Tests Residential Delivery Via Drone Launched From atop Package Car
 Zipline introduction video
 Unmanned Aircraft Systems (UAS) Registration Task Force list of members
Student comments on Pie in the Sky: can Africa help UPS in the Game of Drones?
Drone Delivery is problematic because of 1) possibilities of crashes/damage to goods or property and 2) theft and vandalism are two primary reasons.
1) Drones have a limited ability to detect and avoid trouble, unreliable communications links or GPS signals, pilot errors are major causes of military drone crashes. UPS and other 3PLs bear responsibility for damage of goods shipped by them, but in the event of the crash near a home they would also be responsible for damage to someone’s property. They will need some great insurance.
2) UPS deliveries are subject to theft, and this would be even more noticeable to a drop off by a drone. Also drones make for easy targets for vandals, who wish to damage them or intentionally crash them. To crash a drone all you need is a bent propeller or to mix its GPS signal.
The Drone Delivery service shows a great deal of promise in remote locations, that were previously underserved by 3PLs
I completely agree that UPS should continue to invest in drone technology to make sure it remains part of the future of third party logistics (3PL). In an environment with increased drone usage in delivery by major online retailers, demand for 3PL logistics services generally may decline. In such a situation, cost-cutting initiatives will be all the more important, and drones can play a real role in making sure UPS retains or expands its share of the 3PL market. Further, you’re completely right that UPS should insert itself into the regulatory conversation. Coming drone regulation will have significant impact on how and where drones can operate, and may play a big role in determining whether it makes sense for UPS to launch its drone delivery program in the United States.
However, there is another issue with UPS’ planned expansion into drones whether in the US or elsewhere. While UPS’ initiatives in Africa show the power of drones in the developing world, drone expansion in places where UPS already has a large service will almost without doubt decrease the number of delivery drivers necessary to maintain service in established UPS coverage areas. According to Tech Crunch, UPS Vice President John Dodero said, “Our goal is not to replace UPS drivers…we just want to enhance their capabilities and make them more efficient.”  That doesn’t make any sense. If UPS increases the efficiency of each driver and doesn’t expand its coverage, there will either be fewer drivers or less work for each driver. Either way, I assume that drivers won’t be happy.
 Sarah Perez and Lora Kolodny, “UPS tests show delivery drones still need work,” Tech Crunch, February 21, 2017, https://techcrunch.com/2017/02/21/ups-tests-show-delivery-drones-still-need-work/, accessed November 2017.
Thank you “angieslist” for the fascinating post and I think DR and Ben have kicked off some great analysis. In my post, I want to add another reason to DR’s for why drones may never reach mass scale, and then I also want to suggest a different target region.
First, due to the concerns that DR raised, many public spaces are beginning to invest in drone defense technology (typically involving the jamming of any drones that fly within a certain radius) and those public spaces are generally in cities and so would complicate the use of drones for deliveries.
Second, even if drones are deployed, I don’t know why a company would test them in Africa instead of more developed economies. For instance, the drone regulations in Southeast Asia are generally lax like those in Africa, but the e-commerce markets in Southeast Asia are significantly more developed than those in Africa .
I have to agree with DR and Eric on this one — It seems to me that this drone-delivery race is basically a publicity stunt at this point. At least in the U.S., I find it hard to believe that the unreliability and regulatory uncertainty associated with drones will be less expensive than human drivers (who can basically be paid as Uber drivers / ICs and use their own vehicles) in the next 5 years. Case in point: Domino’s pizza delivery robot in Germany: “For now, the robotic deliveries will only be available within a mile radius of select Domino’s locations. And though Starship’s bots can rove around on sidewalks autonomously, for now the machines will be accompanied by a human to monitor in case something goes wrong.” (source: https://www.recode.net/2017/3/29/15100748/dominos-deliver-pizza-robots-germany-starship)
I agree with Ben that the use-case in rural Africa makes a lot of sense, but it’s hard to see this being applied in more densely-populated regions. Hey, maybe one day Zalora Philippines could use drones to make their model more profitable!
Thank you angieslist for the post!
I found drones in the strikingly similar dilemma as Google Glass few years back, where the public and regulations were not ready to accept it from the consumer market perspective (even today). However, I do see that drones could be useful/helpful in niche deliveries where speed is critical for business use cases – although not sure what kind of role can UPS play – for example:
– Delivering vaccines that need to be refrigerated to regional hospitals
– Delivering replacement parts for Oil rigs
– Deliver key supplies for residents in remote Alaskan towns
– Deliver disaster relief food/water/clothes… life necessities to victims who are stuck in inaccessible affected area
In these cases, for cargo that is small, light, valuable, and time-sensitive, cost is much less of a factor. A drone delivery may save a life by getting delicate medicine to a rural patient, or keep an oil rig running by delivering a key piece of machinery.
I completely agree that Africa is uniquely placed to test out last mile drone delivery. In fact, I think that such a delivery model adds even more value in Africa than it does back home in North America.
Many e-commerce platforms have struggled to reach scale in Sub-Saharan African countries due to 1 problem- postal systems do not exist. At least they don’t exist the way we understand them in North America. Mail does not just come to your door. In Kenya, mail comes to a Post Office box at a Post Office near by. Each individual house is not labelled with a number. Most apartment complexes simply have a name (e.g., Tropical Towers), but no street number. Informal dwellings like slums or shanty towns are even more complex. Here, homes are often made out of temporary materials like corrugated iron sheets, or wood, and streets do not have names or are changing regularly depending on where temporary dwellings are erected. Even if mailmen could hypothetically find a house, road infrastructure is so poor, many towns are cut off for weeks at a time during rainy season because a bridge or a road is flooded.
At the same time, internet penetration, especially mobile web, is growing rapidly each year. For e-commerce platforms, drones make it possible to address these markets. For drone delivery, customers can simply input their coordinates, and drones can deliver a package to their home, even during rainy season. It allows these countries to leapfrog in technology, by passing the postal system, and move forward economically.