By TREVIR I NATH Updated January 16, 2022
Reviewed by AMILCAR CHAVARRIA
As technology continues to grow and play a larger role in consumers' lives, industries have transformed and adapted as well. Companies have moved away from brick and mortar to predominantly online services as a result of ubiquitous Internet access. In this shift, online companies reduce overheadcosts, including rent and wages, associated with operating a physical store.
While online retailers are more convenient, purchases of goods and services are subject to additional shipping and handling charges incurred by the consumer. Even though technology has transformed a number of industries over the past 10 years, shipping and postage have remained relatively unchanged. Traditional postal service providers such as USPS, UPS (UPS), and FedEx (FDX) have remained the primary source of shipping and handling for major online retailers.
Recently, Amazon (AMZN) has challenged the status quo with Amazon Prime Air. Amazon Prime Air is a drone delivery system that anticipates package deliveries in 30 minutes or less1 . The program has not been executed as yet but is currently in development.
While the financial and economic impact of drones is robust, the Federal Aviation Administration's (FAA) regulations in conjunction with privacy and safety concerns have delayed the launch of commercial drone services.
Amazon’s efforts to launch unmanned aerial delivery systems have been delayed as a result of FAA regulations. Currently, drones in the U.S. are sanctioned for military, research, and recreational use. Military drones are not subject to the same regulations as those used for research and recreation.
At the moment, unmanned aerial vehicles (UAV) in the U.S. are regulated up to a height of 400 feet of airspace in populated areas. Commercial use of drones has not been sanctioned by the FAA and is currently illegal. With concerns about air space and ground safety, the FAA is reluctant to provide licenses allowing companies to test drone services within the United States.
Amazon’s inability to research aerial delivery within U.S. borders has led the ecommerce leader to test this new technology in the United Kingdom, with successful tests run in Cambridge, England, in 2016. In 2015, the FAA did provide Amazon with permission to test current models of drones, but by then Amazon had also been testing in Canada.
One of the main setbacks to drone use for commercial activity is the FAA's rule requiring "line of sight." This rule requires a drone operator to have the drone in their line of sight at all times, which defeats the purpose of using drones commercially, especially for deliveries.
Rapid technological innovation has provided consumers cutting-edge products at affordable prices. Traditionally, drones had been limited to military use due to high costs and technical sophistication. However, due to economies of scale, consumers can purchase drones for less than $100.
With widespread access, consumer companies such as Amazon have explored the use of unmanned aerial vehicles for commercial purposes. Amazon Prime Air has promised a 30-minute delivery service for packages of up to 5 lbs. Google (GOOG), in altruistic contrast to Amazon, has developed aerial drones for environmental conservation and delivery of medicine to remote locations.
The environmental impact is also immense. Powered by batteries, drones are more environmentally friendly than delivery trucks. If delivery drones gain widespread usage, this would reduce the reliance on vehicles for many companies. This would have an adverse impact on automobile manufacturers, but the impact on the environment would be a boon and would help many countries reduce emissions, helping meet emissions targets set in various global agreements.
The economic implications of commercial drone use are undeniable. The market for drones is estimated to be $127 billion across a variety of industries. Notably, the commercial use of drones will predominantly affect agriculture and infrastructure more so than commerce. Due to the ability to cover large areas, drone use in agriculture is anticipated to effectively feed and hydrate plants while also limiting exposure to diseases.
On a macroeconomic scale, the integration of UAVs could create more than 100,000 jobs. Over a 10-year span, job creation from commercial drone use will consist primarily of manufacturing jobs and drone operators. Likewise, states will benefit from tax windfalls, stemming from increased economic activity.
The implications clearly have a positive impact on businesses and consumers. Consumers directly benefit from job creation, resulting in additional earnings. Commercial drones will also allow industries to realize savings from cost-effective means of inventory, transportation, and distribution. These cost savings can be passed down to the consumer through a reduction in prices.
While the financial implications of drone use are robust, numerous consumers, states, and regulators believe sanctioned UAV use to be detrimental. 44 states have passed their own laws on drone usage for commercial, recreational, and public use. Widespread use of drones is anticipated to increase privacy concerns among citizens nervous about corporate and government data collection. Amazon drones utilize a camera and GPS to navigate delivery destinations, which many believe to be intrusive.
Furthermore, drone delivery services offered by Amazon and other companies will face logistical roadblocks. Traditional postal services maintain the liability of damaged or stolen property incurred in the delivery process. However, without human monitoring, a drone is unable to ensure seamless deliveries. Likewise, deliveries in major cities are bound to encounter numerous issues. Accessing apartment units within city skyscrapers is an insurmountable feat for an unmanned aerial vehicle.
Aside from logistical and privacy concerns, wildlife, such as birds, face higher risks with the greater number of aerial vehicles. The FAA estimates that birds cause more than $1 billion in damages to aircraft in the United States.
The Bottom Line Amazon’s continued efforts to test and research unmanned aerial vehicles have put pressure on Congress and the FAA to reform drone regulations. The integration of drones into national airspace will not only benefit ecommerce businesses like Amazon but industries such as agriculture, public safety, and natural disaster management, to name a few. In a more altruistic manner, Google anticipates the use of its drones for the delivery of medical products and as a means of protecting the environment.
The economic impacts associated with UAV integration consist of job creation and billion-dollar growth. Likewise, industries cut costs from more effective means of transportation and distribution. Even with the apparent disadvantages, it is estimated that every year integration is delayed, the U.S. loses $10 billion in financial growth.