Last-mile delivery a hurdle for drones
WE MAY never see a wholly white Christmas again, if Amazon and Google had their way. Instead, by this time next year, the treetops may be speckled by black little drones flying overhead to deliver gifts on Christmas morning.

The two tech giants are placing big bets on developing a system of drones to deliver goods. Amazon revealed with some fanfare its experiment with a delivery-by-drone service, named Amazon Prime Air, in which small drones would ship goods from an Amazon fulfillment centre directly to customers.

Google, not to be outdone, recently said that a five-foot (1.5 meter) single-wing prototype from its Project Wing carried supplies including candy treats, cattle vaccines, water and radios to two farmers in Queensland, Australia, earlier in August. More significantly, drones can revolutionize just about every industry, from land surveying to utilities, logistics, media and farming.

But for now, the promise of drones is tested by regulation. Concerns about safety and privacy have led to some tight rules governing their use in most jurisdictions, including the US and the UK. British rules require drones to operate at least 50 meters from a building or a person, and always within sight of an operator. In the US, drone operators must have experience flying manned aircraft.

Beyond rules, practical hurdles exist. Drones provide no answer to the problem of last-mile delivery, a crucial issue for logistics providers in e-commerce today. Online shoppers are often hard to reach at home, and the coordination of time slots for delivery is challenging. This has led to a series of unsuccessful delivery attempts for logistics companies, and in turn, a high level of dissatisfaction for the online shopper.

Drones cannot address this issue, nor can they help in the returns of online deliveries, which are a priority for online consumers. Thus, for both regulatory and practical reasons, online deliveries via drones are not yet ready for take-off.
Earthbound solutions
While working out a future for an Internet of airborne things, e-commerce logistics firms are improvising and developing more earthbound solutions to address the issue of last-mile deliveries for now.

Individual parcel lockers and boxes are one such solution. They may seem humble, but go some ways in circumventing the problem of customers having to be home to take online deliveries. Most post and express companies these days offer these parcel lockers in front of homes to pick up deliveries and place returns. For higher-value or larger-scale deliveries such as electronic goods, such services are particularly valuable since delivery into the regular mailbox would not work.

Mobile-app-based software solutions too, are becoming an important part of the e-commerce offering, as they allow individual consumers to coordinate deliveries directly with express logistics providers. Services that allow for flexible delivery time and location, say in the evenings or at work, and delivery conveniences such as notifications or tracking, are now almost de rigueur, especially in cross-border logistics.

This new demand for finely calibrated IT-based express delivery has in turn created a space for tech startups to enter the fray and fill the coordination gap between online shoppers and delivery service providers. Those new market participants are increasingly challenging the position of express logistics firms and global integrators as retailers and shoppers go directly to the delivery driver for last mile solutions.

To stay in the game, many logistics companies are in turn investing strongly by acquiring new delivery solutions or merging with e-commerce startups.

For instance, FedEx has just announced its acquisition of Bongo International, a provider of cross-border e-commerce IT solutions, only a day after it agreed to buy logistics provider Genco, which specializes in processing returned items. UPS too, announced in October this year its acquisition of i-Parcel to consolidate its strength in the fast-growing global e-commerce market. Closer home, Singapore Post bought up Hong Kong-based self-storage group The Store House Limited to capture opportunities in the region amid rising e-commerce.
Investment drivers
But logistics companies are not the sole drivers of these investments. Online retail and technology bigwigs such as Amazon, eBay and Google too, are eyeing the pie and are equally investing into e-commerce delivery solutions. Their investments are of a scale large enough to start blurring the lines between retailers, online solution providers and traditional logistics companies in the business-to-consumer delivery market. Alibaba's recent investment in Singapore Post is another case in point.

To keep up, logistics companies would have to sharpen their investment focus. And as e-commerce moves cross-border, express logistics firms and global integrators find themselves having to expand the global reach of their networks just to stay in the game.

To up the game further, online retailers have begun offering services that bypass traditional couriers and lock in fickle customers. Amazon has introduced Prime Pantry, a bulk grocery delivery service that charges a flat shipping fee of US$5.99 for the contents of a four-cubic-foot box weighing up to 45 pounds or 20 kilogram’s.

Google and eBay now offer same-day delivery, a service that logistics firms may not be able to provide other retailers on a large scale due to the massive capital involved in building regional networks. Here too, e-commerce firms are moving ahead. Amazon is already rolling out its own fleet of trucks to expand its same-day delivery service.

For now, the answer to the last-mile delivery lies in technology and more earthbound boxes and trucks. Drones remain promising and are likely to revolutionize many industries to come. They are now already widely tested and used in industrial production and warehousing zones as part of the supply chain, alongside driverless vehicles. But for the near future at least, they are likely to have a bigger play in the logistics industrial space than consumer ones.

Until drones can address the thorny issue of last-mile delivery, our Christmases would still be safely white - or green, as in the case of Singapore.
The article was contributed by Steffen Wagner, Global Chair of Transport and Logistics at KPMG in Germany and Satyanarayan R, Partner at KPMG in Singapore.
© 2016 KPMG Services Pte. Ltd. (Registration No: 200003956G), a Singapore incorporated company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.