It’s been over two years since Amazon CEO Jeff Bezos first revealed his plan to launch a drone delivery service called Prime Air within the next 4 to 5 years.
There’s still plenty of tests and regulations to deal with to get the program fully up and running. But there’s a lot to be excited about it, if you’re Amazon.
One of the biggest benefits would be the sheer amount of savings in shipping costs. According to a note published by Deutsche Bank on Wednesday, delivery automation, using drones and robots, present the “biggest cost reduction” opportunity for Amazon, with an estimated 80% cost savings coming to last-mile shipping.
To illustrate this point, Deutsche Bank gave the following cost samples for a typical shoe-box delivery today:
– Premium ground like UPS or FedEx: $6 to $6.50
– Mid-tier carriers like OnTrac: $4 to $5
– USPS for last mile alone: ~$2
– Robots/drones: less than $0.05 per mile of delivery, fully baked for maintenance
“Robots and drones would reduce this to near-zero immediately, and allow for much faster delivery times,” Deutsche Bank wrote in the note.
The reduced shipping cost will directly benefit the customers. According to ARK Investment Management, Amazon will be able to charge just $1 to have a drone deliver a package in 30 minutes or less. Amazon plans to start with small packages, weighing less than 5 pounds (2.2kg), and given 86% of orders shipped by Amazon weighs less than that, the benefits are tremendous both ways.
“Once the regulatory hurdles are cleared, Amazon is likely to ramp using robots and drones for delivery significantly,” Deutsche Bank wrote.
Of course, one issue that’s not addressed in these estimates is the added cost that could result from drone-delivered packages that are lost, damaged or intercepted — which may or may not become an issue as drones take to the skies.