Australian 2021 property outlook
Research | 4 minute read
The growth of e-commerce has spurred on expectations, with consumers becoming increasingly demanding, expecting goods quickly, with free delivery and returns, all at a competitive price point. COVID-19 has furthered this trend and even after the roll out of a vaccine, we are likely to see a continued level of increased demand once we get back to a new ‘normal’.
Logistics operators are therefore examining innovative ways of more efficiently and effectively delivering goods to consumers. Drone technology is one way they could do this and could significantly change the way goods are delivered with an associated impact on logistics assets.
An increasingly demanding 24-hour-a-day delivery schedule is challenging traditional logistics and supply chain models, with companies being forced to assess and adjust their strategies to provide an always-on-demand service, while also attempting to maintain some sort of profit margin. From autonomous robots used to fulfil orders and increase efficiency in warehouses to drones for online fulfilment, supply chains are undergoing a major transformation.
The ‘last mile’ to the customer is often the most expensive and inefficient aspect of supply chain management. According to Morgan Stanley (published by Gerald Eve) the transportation of goods accounts for 50% of a logistics occupiers’ total costs and has consequently resulted in an increasing number of companies looking at alternative ways to reduce the costs of delivery, with some investigating drones as a potential cost-effective, environmentally friendly solution.
Imagine a package entirely forgoing the last-mile logistics process as we currently know it. No need for it to be transported to a warehouse or for carrier trucks, drivers, paperwork or signatures. Instead, an automated system arranges for a drone to pick up the order before delivering it directly to the consumer.
Inevitably, not everything that is ordered is kept and returns need to feature in this equation as well, meaning drones have the potential of not only delivering packages, but also retrieving and returning them. Perhaps in the future the consumer, instead of having to go to the post office during opening hours to return a package, could call a drone to pick up the unwanted parcel and return it potentially at the same time as other parcels are delivered. Returns may even be processed while a drone is in transit, resulting in an even more efficient solution.
At the moment, last mile operators and small package delivery companies are probably the most suitable logistics operators to adopt drone technology, assuming legal barriers and regulatory issues can be resolved. This is largely due to the current technological limitations of drones with most only capable of traveling a distance up to 15 miles (24 kms) and carrying up to 5 pounds (2.3 kgs) in weight.
While companies continue to develop technology to improve the range and weight capacity of drones, government regulation would also have to change significantly in order to allow drones to deliver regularly. In many ways, this may be the biggest impediment to future adoption.
Drone technology remains in its infancy, with testing only underway in remote and sparsely-populated areas. Commercial drone delivery to urban areas still requires skilled human operators, and drones will need to pass stringent safety tests before being allowed to operate autonomously in more densely populated areas.
Further legal concerns surrounding liability should an accident occur also act as a barrier. Logistics operators insure against any potential incident to not only the stock, but also delivery drivers and the broader public. It is unclear, given there is no precedent, where responsibility would fall if a drone-delivered package or property was damaged or if an injury were to occur as a result of a technical or operational glitch.
Management consulting firm McKinsey & Company has forecast that autonomous vehicles, including drones, could make up to 80% of future deliveries. Investors will need to be mindful of this when selecting future logistics assets, particularly if the barriers to adoption are overcome and drones begin to disrupt warehouse operations and last mile logistics.