Category Archives: postal technology international

will drones soon be delivering your mail?

A version of this story was published in Postal Technology International magazine in Spring 2014.

When Amazon head Jeff Bezos unveiled a fleet of unmanned robot helicopters that his company plans to use to make parcel deliveries it was a masterstroke of PR.

The announcement came last November over the Thanksgiving weekend, one of America’s biggest shopping periods, and made headlines around the world. But while the timing led cynics to deride Bezos’ drone delivery test project as little more than a cheap publicity stunt, others saw the plan as the true taste of things to come.

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Technology geeks predicted that drone delivery could help usher in a whole new era where the half-hour deliveries Bezos was promising could enable the creation of a ‘sharing economy’ where goods could be rented and returned rather than bought outright. Others were worried about the safety impact of thousands of drones buzzing around our home towns, with one observer noting wryly in the Washington Post, “It’s all fun and games till Sally loses a finger.”

But while there’s little chance our streets will be swarming with postal robots any time soon, the signs are that drone delivery is being looked at seriously by postal companies worldwide.

Just a few weeks after Amazon’s announcement DHL used a quadcopter to fly a package of medicine from a pharmacy in Bonn to the company’s headquarters on the other side of the Rhine river. Emblazoned with the DHL logo the ‘Paketkopter’ – as the drone was called – flew at a height of 50 metres for one kilometre, taking just two minutes to complete its journey.

DHL said its test flight was for research only and, like Amazon, insisted they have no plans to begin drone deliveries any time soon.

In Australia, however, the concept will soon become a reality thanks to student textbook delivery start-up Zookal, which will launch its own fleet of delivery drones in Sydney this year “pending final regulatory approval”.

Ahmed Haiser, CEO of Zookal, says that due to the location density of most Australian universities they will focus initially on “hyper local” delivery.

He says: “The drones are equipped with a unique delivery mechanism that lowers the parcel to the consumer to collect. The parcel is not dropped to the ground and the drone hovers above the consumer’s GPS location safely lowering the package through our delivery mechanism.”

Zookal has been helped by a friendly regulatory climate in Australia, one of the few countries that permits commercial drone use. Despite Amazon’s announcement commercial unmanned vehicle use remains illegal in the US. That looks set to change in the near-future however.

An aviation law enacted by President Obama in 2012 already allows the use of unmanned aircraft by public safety entities like the police, firefighters and other emergency services. Among the agencies that have taken advantage of the law are the US Coast Guard, who used a drone in a recent raid on a boat trafficking over 560 kilos of cocaine in the eastern Pacific, and the Department of Homeland Security, which uses Predator drones for border surveillance.

The other main non-military use of drones right now is for scientific research. They are being used to perform ice cap studies in the Arctic, track coastal erosion and monitor populations of endangered species.

According to Les Dorr, a spokesman for the US Federal Aviation Authority (FAA), the signs are that the 2012 law will be extended to include commercial craft by 2015. Dorr says the FAA ruling due next year is likely to include authorization for “small unmanned commercial aircraft under 55lbs”.

“There’s a real growth in this area,” says Dorr. “The FAA is already predicting 7,500 small unmanned aircraft in the air in the next few years.”

The FAA announced in late December the creation of six US test sites where it will the generate data that will inform how the commercial drone industry will be regulated.

High on their priorities during the testing phase will surely be how to make the craft safe and secure. While most drones have built-in anti-collision technology to keep them clear of trees, buildings, birds and – assuming the technology becomes popular – skies filled with other drones, towns and cities throng with people and if something were to go wrong the consequences could be serious.

Ron Tolido, chief technology officer for application services at the consultancy firm Capgemini, says that well-established industry safety standards are already in place to help ensure public safety.

Tolido says: “A sensor can sense its surroundings thousands of times within a second so that drones can adjust their position and course. And even complex swarms of delivery drones should not lead to collisions. Just look at a flock of perfectly synchronized birds (or fish) and you start to get the point.”

To minimize the chance of collision Haiser says Zookal use set flight paths that avoid residential areas where possible. Along with multiple fail-safe mechanisms and collision avoidance technology, Haiser claims the safety features make the risk of accident “the same as a commercial airliner falling from the sky”. In other words, very small.

But it’s not just safety issues that concern the public. Ask most people what comes to mind when you say drone and they’ll likely think of the technology’s original use as a weapon of war. In conflict areas drones are used to spy on and, in the case of the US military’s campaign in Pakistan, to kill the enemy.

Mario Mairena, government relations manager for the Association for Unmanned Vehicle Systems International (AUVSI), a trade body representing 8,000 members in 60 countries, admits that the technology’s military background has led to an image problem.

“There’s too many negative connotations because of how they are used in the theatre of war,” says Mairena.

As a result the AUVSI never uses the word drone in its literature, preferring instead the term unmanned aircraft systems (UAS).

“Some people are against drones because they think they’ll be used for spying but when you think about it telephoto lens are used for surveillance but no one talks about banning cameras,” says Mairena, who says all AUVSI members sign on to a set of guidelines that expressly forbid the use of drones for surveillance.

The public perception aside, there are other important obstacles to drone delivery.

Richard Wishart runs the Delivery Management technology consultancy, advising posts on new technology solutions. He sees unmanned drones as a potentially disruptive technology but only if the “practical issues around the edges” can be ironed out.

Wishart says: “Weather is a detrimental factor. From my understanding most drones don’t perform well in high winds. So what happens to your deliveries when it’s blowing a gale outside?”

Added to this, he says, are the weight, size and range limitations of the drones. The octocopters favoured by Amazon can carry a maximum payload of 2.3 kilos and can travel no more than 10 miles. Meanwhile the payload boxes showcased in the trial could fit parcels of no more than about ten inches in length.

“Logistics relies on variability so a delivery system with such a narrow range of capabilities will struggle to succeed,” says Wishart.

It’s early days of course and there’s every chance that future generations of delivery drones could extend their range and payload capacity. What may be more difficult to get around is the problem of where to leave parcels. In a suburban, semi-rural or rural areas the drone could drop parcels on a driveway or in front lawn or even – as Wishart suggests – on a specially-designed helipad.

But what about inner cities? Short of flying in through the window there’s no obvious solution for how a drone would get a package to someone on the tenth floor of a London high rise, for example. Tolido suggests an “intermediate phase” where parcels could be delivered to local hubs.

“Door-to-door consumer delivery will clearly take quite some more time,” he says. “Both hubs and eventually homes will need specific equipment like docking platforms and storage facilities. Positioning can be done very precisely so this will not be an inhibitor.”

None of the obstacles to drone delivery are unsurmountable, says Wishart, whose keen to point out that the concept fits well into the emerging trend in logistics, spurred by the rise of eCommerce and omni-channel retail, for moving warehousing closer to the client.

“Their short ranges mean drones will need to operate from local warehouses,” he says. “Because of this they integrate well with the new paradigm.”

Advocates offer other advantages drones have over traditional delivery methods. For one thing they can work all the time and they are relatively cheap. Twenty drones costs equivalent to a single FedEx truck, and while Haiser won’t reveal the Zookal drone’s operational costs he expects it will come in at less than current same-day delivery fees.

If postal companies choose to invest in drones they’ll be joining a burgeoning market, says Mairena. A report by the AUVSI projects that regulations to expand drone technology to the commercial sector will help create more than 100,000 new jobs and generate more than $82 billion for the US economy in the next ten years.

Around 80 percent of this growth is predicted to come in agriculture. Drones can be used to more precisely spray crops and identify possible outbreaks of disease before they spoil a harvest. The companies Mairena represents look longingly to Japan where all the agricultural crop-spraying is now managed by a fleet of 2,300 unmanned helicopters.

The agricultural bias aside, Mairena sees no reason why drone delivery won’t be part of this Brave New World.

“I definitely see drones being used in this way,” he says. “I think it’s one of the smartest commercial applications of the new technology I’ve heard of.

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china’s online explosion

A version of this story was published in Postal Technology International in Spring 2014. 

On November 11 last year a new record was set for the highest ever online sales in a single day.

There were several startling things about this record not the least of which was that it happened, not in the West, but in China.

Another two remarkable things were 1) the sheer scale of the shopping event – with $US5.75 billion in sales it eclipsed the amount sold by US retailers on so-called Cyber Monday the previous year by two and a half times. And 2) that all these sales were processed by a single company.

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If you were to assume from this that China is undergoing an eCommerce boom you would be very right.

The stats speak for themselves.

According to the consultancy Forrester Research, the number of online shoppers is this year poised to exceed the entire population of the United States, making China’s eCommerce market the world’s largest. The 356 million shoppers set to be online in 2014 will help push the market value from $US294 billion in 2013 to $US604 billion in 2017, Forrester’s predict.

The boom in eCommerce has taken many by surprise including China’s domestic express delivery industry, which is struggling to keep up with demand.

The sheer the scale of the uptick would be reason enough for why the industry is swamped.

Last year express delivery companies handled 4.77 billion items, according to the express delivery industries own figures. That represented a 70 per cent increase on 2012.

To make things harder, there are no national delivery companies of the stature of FedEx or DHL in China and the market is fragmented. Added to this, transport networks and logistics services vary wildly in quality depending where you are.

Officials on the ground refer to the problem as China’s logistics ‘bottleneck’ and it’s something the eCommerce companies are seriously worried about.

In 2011, Jack Ma, the Chairman of Alibaba Group, the same online company that recorded the November 11 sales record, called logistics “a crucial link in the eCommerce eco-system” as he announced plans to invest $US1.5 billion to build a nationwide network of warehouses.

Last May, Ma’s firm clubbed together with other eCommerce companies and delivery companies to create the China Smart Logistics Network, a consortium that plans to invest $US16.3 billion over the next 5-8 years to solve the bottleneck.

“China is a unique market in that it is unlike any other in terms of geography,” a spokesperson for Alibaba Group told PTI. “The offline infrastructure is extremely underdeveloped, which is one of the contributors towards the massive uptake of eCommerce. And the logistics sector is fragmented and has no unified standards.”

The spokesperson identifies infrastructure, and in particular, technological capabilities as the biggest things holding back logistics.

“Many logistics companies lack the ability to efficiently allocate resources and manpower based on volume and location of incoming orders,” the spokesperson added.

Chee Wee Gan, a principal in the consultancy AT Kearney’s Strategic Operations Practice, says the current express delivery landscape in China can be divided into three distinct blocks.

“First you have the state-run company, China Postal Express. Then, you have the nationwide private delivery company Shunfeng Express, also known as S.F. Express,” says Gan, who is based in Shanghai.

“The third block is composed of logistics providers that operate through a franchise model. The biggest of these is S.T.O. Between them, China Postal Express, S.F. Express and S.T.O probably account for about two-thirds of the eCommerce delivery market.”

Companies like S.T.O oversee a network of locally-based courier services and, alongside S.F. Express, they account for about 80 per cent of the express delivery market, according to industry figures.

But Gan says that as the eCommerce market grows this model is being tested.

“A company like S.T.O has hundreds of small courier firms working under its franchise and this means the level of service can be inconsistent. It also makes certain services less efficient. For example, in the case of product returns, if a different company in the franchise handles the return there may be no financial incentive for them to do a good job.”

Concerns about poor service have been laid bare several times in recent years.

In 2012, the Chinese postal authority cancelled the permits of 116 express delivery companies amid growing reports of customers complaining about losses, theft, poor handling of parcels and massive delays, especially during peak times.

The most shocking case of malpractice happened last year when a Shanghai-based express delivery company sent out parcels coated in poison, resulting in the death of one recipient and leaving several others badly ill.

The company, Shanghai Y.T.O Express, issued a public apology after the toxic chemical apparently leaked on to other parcels during shipment, the Xinhua news agency reported.

Concerns about the domestic market have led some eCommerce companies to set up their own networks.

Online supermarket site Yihaodian has created its own last-mile delivery.

Yihaodian launched five years ago selling supermarket items but now offers a broad range of consumer products. It has 18 fulfillment centres in eight cities nationwide.

“We have around 3000 last-mile associates in 330 delivery depots, each associate owns a moped or bike,” says Harvey Wang, Yihaodian’s vice president of operations.

Wang says complaints about local couriers led Yihaodian to set up its own last-mile service.

He says the problems included “customer satisfaction on delivery services, including a stable lead-time, missing/wrong/damaged goods, and the attitude towards customers.”

By building their own network Wang says the company, which has a yearly turnover of about $US1billion and is half owned by the US retail giant Walmart, has achieved better delivery lead-times than in the US or Europe.

The undisputed king of Chinese eCommerce is the Alibaba Group.

Taobao, Alibaba Group’s giant eCommerce site, generates some 20 million parcel deliveries every day, accounting for 70 per cent of China’s total.

The site is often compared to C2C sites like eBay but in fact it’s more like store-hosting Websites like the arts and crafts site Etsy. Users set up their own online shops, selling goods to one another and to outside visitors to the site.

For Richard Wishart, from UK-based consultancy Delivery Management Ltd, the mass appeal of Taobao is no surprise.

“The Chinese have retail in their DNA,” says Wishart, who helped develop China Postal Express’ express delivery service, E.M.S. “They’re a nation of shopkeepers, and online is no different.”

Alibaba Group, which owns a number of other eCommerce sites including the highly successful B2C site Tmall.com, has so far resisted building its own in-house operation.

Instead it has focused its efforts on strengthening the existing logistics network.

“The reason why Alibaba chose to throw open its delivery arm to the market has to do with the type of company this is,” says Gan. “You have to remember it made its name with Taobao, an online marketplace. So the marketplace is where it feels at home.”

Alongside Alibaba Group the major shareholders in the China Smart Logistics Network are retailer Yintai Group, Chinese conglomerate Fosun Group, S.F. Express, and four other Chinese courier companies: Shentong, Yuantong, Zhong Tong and Yunda.

Their goal is to build an IT-driven network capable of delivering packages anywhere in the country within 24 hours. To do this they plan to use technologies like cloud computing to create a shared data platform to serve eCommerce, logistics companies, warehouse operators and supply chain managers.

Creating such a network will be a major undertaking.

Among the difficulties to overcome is the massive variances in quality and technological advancement between some of the courier companies.

S.F. Express, for example, has 10,000 vehicles, 14 aircraft and a network of 7,600 service centres. It offers SMS pick-up notification, a re-direct service and security features that allow customers to see a photo of the delivery man before he arrives. Meanwhile, its 200-plus distribution hubs are equipped with automated sorting systems.

This is a far cry from some of the warehousing operations run by the franchised courier companies that Gan has visited where he says there are “very low levels of automation, no Warehouse Management System (WMS) and products strewn all over the ground with no clear sorting process going on.”

Another area where major variances in quality can be found is in China’s transport infrastructure. Currently about 80 percent of express deliveries are carried out on the road, according to analysts Anbang Logistics.

But the road network in China is patchy at best, says Wishart.

He says: “There’s a huge disparity between the eastern coastal cities and rural China. Once you leave the cities motorways disappear into dirt roads. You’re talking about two totally different worlds.”

China grades its cities with different ‘Tiers’ ranging from 1 to 4 according to their stage of development.

The coastal cities Shanghai, Beijing, Shenzhen, and Guangzhou are classed Tier 1, as they were the first to be opened to competitive economic development and have a large middle class and income levels well above the national average.

But the biggest growth in eCommerce right now is actually going on in Tier 2 and 3 cities, says Gan.

“This is because there are not the bricks-and-mortar stores on the ground in these places to offer the diversity of shopping experience you could find in, say, Shanghai,” he says. “As a result, eCommerce is plugging the gap.”

One group conspicuously absent from China’s eCommerce boom are the well-established Western courier brands like FedEx, UPS and DHL.

According to Gan, the main reason they have had little impact on the domestic market are low margins.

He says: “The price points are just too low for them to compete. DHL, for example, bought a Chinese delivery company a few years ago with a view to getting into the domestic market but sold it at a big loss a couple of years later.

“Companies like FedEx have focused instead on B2B delivery where the margins are higher.”

Low margins may not be the only reason, however.

Until recently Chinese government policy largely excluded foreign courier companies from its domestic market.

UPS, for example, has had a base in China since 1988 but it wasn’t until just two years ago that China finally granted the company approval to provide express-package services within the country, and even then the approval only extended to five cities.

FedEx, meanwhile, which already provides service to more than 400 Chinese towns and cities through joint ventures with Chinese companies, was granted sole access to serve eight cities.

Wishart says China remains quite proprietary about its domestic market and that within government there is still a culture of suspicion towards western companies.

He cites his own experience. He set up an eCommerce website a few years ago. Although created in the UK it was translated into Chinese and aimed at the Chinese market. When he traveled to China, however, he found that the website was blocked in much of the country.

“I’d come up against the Great Firewall of China!”