Originally viewed as a piece of sophisticated military technology or a hobbyist’s tool, the Unmanned Aerial Systems (UAS) industry, with a US$14.1 billion global market value, has established a presence in the corporate world over the past years. As innovators explore new uses, businesses across industries realized that drones have multiple commercial applications, some of which go beyond basic surveillance and recording purposes.
Expanding rapidly in recent years, the commercial use of drones, also known as Unmanned Aerial Systems (UAS), presents new opportunities to businesses and governments for commercial and recreational purposes. Initially viewed as sophisticated military technology, the commercial use of drones has increased dramatically due to their ever-expanding capabilities. Businesses around the world have increasingly turned to drones for a variety of commercial applications, and they are already using them to transform some industries. UAS technology can help to accomplish time-consuming and challenging tasks while reducing costs and potential risks. There is a growing trend to adopt drones to replace existing solutions that involve humans, such as the inspection of powerlines or wind turbines. Over the past few years, drones have been utilized in certain sectors, most notably construction, agriculture, and insurance. As useful tools for engineers, drones can reach remote and difficult-to-access areas quickly and provide data for an overview of a given situation. Drones serve as an extension of the operators and assist in the accomplishment of various tasks as promptly as possible, saving time, personnel, and money. Insurance companies use drones to inspect damaged assets, and farmers use them to monitor crops and collect soil data. Drones are also utilized for the monitoring of livestock and locating missing persons. As technology evolves and matures, innovators explore new uses. Drones with mission-specific payloads are also used for delivering lab samples from medical clinics to hospitals or to perform accident prevention and response to offshore refineries.
In addition, leading tech giants like Amazon heavily invest in drone services such as drone taxis and drone deliveries, while some companies focus on providing Internet connection to remote areas with specially equipped drones. According to The Library of Parliament (the main information repository and research resource for the Parliament of Canada), drones used for recreational purposes currently represent the largest civilian market in terms of the number of units sold; however, commercial drones are projected to be the fastest-growing segment of the civilian market in terms of revenue. It is estimated that 74% of the drones sold are used for recreational purposes, and 26% are used for non-recreational purposes. The American multinational investment bank and financial services company Goldman Sachs Group predicts that military, recreational, and commercial drones will represent a US$100 billion market opportunity between 2016 and 2020. Supporting this statement, according to the Association for Unmanned Vehicle Systems International (AUVSI), the drone industry in the U.S. will result in the creation of about 100,000 jobs and have an US$82 billion impact on the economy by 2025.
Another potentially immediate economic impact of the drone industry comes in the form of job creation. As commercial drone usage increases, the number of operators and technicians will also increase accordingly to maintain this billion-dollar industry. According to Global management consulting firm McKinsey & Company, the United States is a particularly strong source of commercial growth, with the value of drone activity rising from US$40 million in 2012 to about US$1 billion in 2017. Thanks to the increasing interest in commercial drone usage, start-ups have attracted more than US$3 billion in funding for new UAS applications, while OEMs have received almost half that amount of around US$1.4 billion. By 2026, McKinsey estimates that commercial drones will have an annual impact of US$31 billion to US$46 billion on the country’s GDP, and the developments within the United States could signal how commercial drone usage and investment will proceed in other markets.
Delivery & Cargo
Cargo drones come in different sizes with different load and performance capacities, from small drones for delivery services to much larger aircraft that are capable of mixing both VTOL (Vertical Takeoff and Landing) and conventional flight. They are typically equipped with powerful sensors and next-generation software. With cargo drones, companies can deliver goods to customers in remote areas or in congested urban areas where traditional delivery methods may be more challenging or slower. Additionally, cargo drones can help reduce delivery costs and increase the speed of delivery, which can improve customer satisfaction and loyalty. Google (Alphabet Inc.) and Amazon are making significant investments in drone technology to expand the reach of commercial drones. Drone-based delivery services constitute one of the most obvious applications.
Delivery by drone is perhaps the most visible use case of this trend in the supply chain. So far, drones typically deliver high-value products like medication and blood. However, progressive technology developments have expanded their potential use in delivery logistics, helping alleviate pressure in the supply chain caused by more e-commerce orders. These can be classified into several delivery categories. Hub-to-hub or warehouse deliveries are mainly used for short distances. The drones deliver industrial goods or products to a pre-defined delivery hub located within a firm's premises or within a warehouse. The service is performed purely for internal process optimization and efficiency gains. Last-mile supply chain deliveries are mainly used for short-to-medium distances. This service utilizes drones to deliver industrial products or goods to nearby customers or partners. The drone can take off from either the company's premises or a traditional delivery truck. This approach is particularly appealing in rural areas, where delivery trucks have to serve several locations, leading to longer lead times. By utilizing drones, lead times can be reduced, and the service's overall cost structure can be improved. Drones can also be used for intracity or intercity deliveries (long distances). Drones are used in this scenario to transport goods from a company's location in one city to another city or within a larger metropolitan area (known as intra-city transport). However, due to existing range limitations, economic constraints, and regulatory challenges, this particular application is still in its early stages of development. Despite these challenges, if successful, this service has the potential to revolutionize the cargo industry.
Several companies have already received approval to use drones for delivery purposes. For instance, logistics companies UPS and Wing, which is owned by Alphabet, have begun testing drone delivery services. In particular, UPS delivers medical supplies by drone to a hospital campus in Raleigh, North Carolina, while Wing uses drones to deliver small packages over short distances in Virginia. Zipline, a US medical product delivery company, has also leveraged drone technology to deliver medical supplies in Rwanda and Ghana. Due to Rwanda's challenging terrain, poor road conditions, and long rainy season, Zipline's air delivery system is more efficient and cost-effective than traditional road transport. Their drones are small electric fixed-wing aircraft that can fly up to 180 km on a single charge in any weather. To make deliveries, the drone descends to a low altitude and drops the package to the ground, slowed by a parachute-like air brake. According to Zipline, they have made over 200,000 deliveries to date, with an average delivery time of around 30 minutes. The company has reported a significant decrease in the time it takes to deliver medical supplies, from hours or days to just minutes, which has had a positive impact on patient outcomes.
Clearly, small cargo drones are primarily known for their ability to deliver small packages, but their potential extends beyond that. Many logistics organizations currently rely on human personnel to monitor inventory in facilities, particularly on shelves for pallets. This is a time-consuming and costly process that can be automated using drones. Drones can quickly perform tasks such as assessing and confirming stock counts and vacancy rates on shelves without the need for large warehouse vehicles like aerial work platforms to examine the higher shelves. With whole fleets of drones operating autonomously, only one worker is needed to manage and assess flagged circumstances. This reduces the need for a large workforce and allows companies to check stock more frequently, increasing warehouse management system (WMS) accuracy and optimizing facility operations. While small cargo drones are commonly used for small package delivery, they have the potential to revolutionize inventory monitoring and management in warehouses.
Apart from the cargo capacity, there are other advantages of cargo drones. Throughout history, land transportation has played a crucial role in the supply chain process. However, for transporting goods over long distances and for exports, airplanes have taken over. But now, with their potential to dominate the airspace, drones could become the go-to method for transporting goods, surpassing even commercial flights. This could have significant benefits for crowded cities, where cargo transportation currently contributes to 20% of the traffic and 30% of the pollution. The use of cargo drones for delivery could help reduce carbon emissions and improve environmental sustainability. Compared to traditional delivery methods such as road transport, cargo drones have a lower carbon footprint and produce fewer greenhouse gas emissions. Moreover, the use of cargo drones could reduce the need for large delivery trucks, which could reduce traffic congestion and improve air quality in urban areas.
Delivering commercial items, food, or medication packages with drones is an eco-friendly solution that can significantly reduce CO2 emissions and carbon footprint. According to the US Environmental Protection Agency, the transportation sector in the US was responsible for 31% of GHG emissions in 2021, with delivery trucks alone emitting approximately 415 million metric tons of carbon dioxide per year, accounting for a quarter of all transportation emissions. In contrast, drones operate on lithium-ion batteries and consume less energy per hour, resulting in a smaller carbon footprint. However, the amount of GHG emissions associated with cargo drones depends on the payload capacity of the drone used for delivery. Cargo drones with smaller payload capacities emit fewer grams of CO2 equivalent per package than electric trucks and larger cargo drones. Improving the energy efficiency of warehouses and reducing electricity generation from carbon-intensive fuels can further enhance the benefits of drone delivery. As a result, the demand for cargo drones is projected to increase significantly in the coming years as the world seeks to lower carbon emissions in transportation.
As drone technology continues to evolve, cargo drones could become even more advanced and capable. For instance, some companies are exploring the use of artificial intelligence and machine learning algorithms to enable cargo drones to make autonomous decisions and navigate complex environments. Furthermore, the use of solar-powered batteries could extend the range and endurance of cargo drones, allowing them to travel longer distances and operate in more challenging conditions. The drone industry has been transformed by the rapid progress and advancement of autonomous and AI technologies. These two technologies work in tandem to enhance drone capabilities. Autonomous drones can collect data from their surroundings through sensors and process and interpret it without human intervention. AI is responsible for making decisions and controlling responses based on this data. By integrating information from multiple sensors, drones can become smarter and better equipped to understand and act on their environment. These technological advancements not only lead to new applications but also improve efficiency and reduce the cost of cargo deliveries, making drones a significant contributor to the economy. As drone functions become more autonomous and intelligent, the benefits and efficiencies will continue to increase. Furthermore, the emergence of attractive cargo drone applications creates a promising and sizeable market, which is of interest to investors.
The cargo drone market is projected to grow from US$ 534 million in 2022 to US$ 17.9 billion by 2030, with a CAGR of 55.1% in that period. This growth can be attributed to the rise in demand for on-site, on-time industrial delivery and emergency supplies, as well as a significant change in the regulatory framework that enables the operation of autonomous drones beyond visual line-of-sight. The continued development of disruptive technologies, especially autonomous and artificial intelligence, will further contribute to the strong growth.
According to data from the German-based international management consultancy Roland Berger, this growth has attracted investors, with venture capital (VC) rising continuously in recent years. VC funding in cargo drone startups, both in terms of deal frequency and dollar value, initially picked up pace in 2015 (US$172 Million). It then grew rapidly to reach a first major peak in 2019 (US$515 Million). After a dip in 2020 (US$247 Million), funding exploded in 2021 to US$1,311 Billion. The decline in 2020 is linked to the COVID-19 pandemic, which in turn expedited many fundamental trends. One of these was sustainability, which fueled the passenger drone investment craze and spread to the cargo sector. The AAM sub-segment was also affected by COVID-19, as the number of VC deals declined from its peak in 2019, indicating a direct impact on investor outlook. Despite the 2021 surge in investment to unprecedented levels, the deal size remained relatively steady and failed to rebound.
On the other hand, the diminishing price of lithium-ion batteries has helped to optimize drone cost and performance. And just as costs have fallen, battery densities have increased. It is thought that densities are improving by almost 10% a year, leading to lighter, more powerful batteries and smaller drones with higher lifting capability. According to Roland Berger’s analysis, the ion-battery back costs vs. batter density figure, the prices in USD per Kw/h are expected to be reduced between the year 2023 to 2030 from 101 USD to 58 USD. The rapid improvements in battery technology will allow drones to fly farther for longer, leading to many new use cases and applications and unlocking untapped value for the drone industry.
The logistics delivery network can be significantly enhanced with the integration of cargo drones, allowing for the seamless flow of goods between distribution centers and business and production sites. However, the true potential of drone technology can only be realized with the widespread adoption of autonomous operations and full utilization of AI. Encouraging advancements in the field indicate a promising future for the industry, despite the challenges it faces. Commercial cargo delivery via drones is highly promising, with projections from Morgan Stanley indicating a possible US$1.5 Trillion industry by 2040. While the use of drones for passenger transportation may take longer to become a reality, the market disruption caused by this technology suggests it could eventually become feasible.