In the past years, heightened customer expectations on e-commerce on-demand delivery combined with robotics innovations gave rise to futuristic possibilities of parcel delivery by drones, causing a paradigm shift in last mile distribution and value proposition of traditional logistics providers.
McKinsey envisions autonomous vehicles and drones to be the “future of last mile” contributing ~80% of all consumer delivery . E-commerce leaders are investing heavily to automate and control the costliest and most inefficient “last-mile” delivery and vertically integrate to reduce reliance on 3PL. Amazon announced drone delivery service Prime Air in 2013 when Jeff Bezos made the customer promise of 30-minute delivery  to be realized in 4-5 years, and has since filed multiple patents including “beehive” fulfillment centers (Exhibit 1)  and opened a research facility in Paris. Walmart also migrated its battle with Amazon to the skies by patenting an unmanned “airborne warehouse” .
Most 3PL players are not proactively addressing these challenges. Amazon, the clear first-mover, piloted Prime Air delivery in the UK in 2016 and debuted customer delivery in the US three months later, showcasing capabilities and commitment to change the game. Meanwhile, most logistics players are still playing catch-up in R&D, while some like FedEx remain hesitant due to regulatory uncertainty .
Among global logistics leaders, UPS has the highest potential to lead in this rivalry. Like Amazon, UPS invested in R&D and patents, and partnered with drone developer Workhorse Group  to ramp up know-how and integrate drones into their delivery network. In Feb 2017, they successfully tested a drone launch from a UPS truck for home delivery (Exhibit 2). Albeit a reactive move, this was UPS’ first milestone in drone deliveries.
A remarkable medium-term strategic move was UPS’ partnership with Zipline (Exhibit 3) , California-based drone startup, to deliver blood and critical medical supplies to remote hospitals in Rwanda. Zipline’s “sky ambulances” deliver blood within 30 minutes of emergency calls, drastically resolving Africa’s “stock out” problems by making access possible to rural areas with close to no infrastructure. Since 2016, they have transported 20% of Rwanda’s blood supply and expanded to Tanzania where they aim at 2,000 daily deliveries from four distribution centers, the world’s largest drone delivery network. Partnering closely with local African governments enabled speedy regulatory adaptation and leeway for technological experiments, such as air traffic control and data collection.
Exhibit 3 Zipline in Rwanda
Neither Amazon nor Google has come close to such large-scale implementation of commercial drone delivery, and this positions UPS as the first success story globally, earning them not only great publicity and social impact but also opportunities to push boundaries and build capabilities to manage complexities of a national drone network from infrastructure to analytics, as well as navigating the regulatory and stakeholder landscape.
To take these initiatives further and gain competitive advantage, I recommend UPS management to take the following actions –
- Insert themselves in regulatory decision-making
Google and Amazon lobbied to be a part of the Unmanned Aerial Systems Registration Task Force  under main regulator Federal Aviation Administration (FAA), which convenes government agencies and industry leaders to shape regulations. The task force currently has no representation of the logistics sector, and UPS should get a seat at the table to gain first-hand knowledge and influence on regulatory evolution on critical questions such as drone registration and data privacy.
- Expand African partnerships to e-commerce as testing ground for technological and regulatory breakthrough
UPS needs to innovate quickly to gain true advantage instead of staying a fast follower. Building on the Zipline collaboration, UPS should seek partnerships with e-commerce players like Jumia, Africa’s #1 marketplace, to offer last mile drone delivery. They should prioritize small high-value packages like electronics and remote areas where drones can add most value. With a favorable regulatory landscape and receptive customer base, Africa is an ideal testing ground. For instance, it is illegal in the US to fly autonomous drones outside human sight, while in Africa there are no such restrictions. Co-investing in R&D with governments and retailers will create a win-win to all stakeholders and enable UPS to become a true disruptor.
- Bring tested approaches home
Instead of waiting for regulations and consumer acceptance to mature in the US, UPS should accelerate penetration in emerging markets. Track record in shaping regulations in Africa will give them credibility in lobbying with US regulators, and when time is ripe they can replicate the end-to-end solution in urban markets.
Beyond fighting to win share in the “pie in the sky”, UPS should grow the pie by entering emerging markets and building differentiated offerings as a first-mover.
With this nascent space still evolving on the daily, questions remain – Will drone delivery eventually take off? How applicable is UPS’ partnership model in developed markets? Does UPS stand a chance to fly past Amazon in the game of drones?
(Word count: 800)
 McKinsey & Company Travel, Transport & Logistics industry article https://www.mckinsey.com/industries/travel-transport-and-logistics/our-insights/how-customer-demands-are-reshaping-last-mile-delivery
 Jeff Bezos “60 minutes” interview to reveal “big surprise” of Prime Air, Dec 2013
 Amazon’s “beehive” fulfillment centers
 Walmart Wants to Take on Amazon With Flying Warehouses
 FedEx Bets on Automation as It Prepares to Fend Off Uber and Amazon https://www.technologyreview.com/s/602896/fedex-bets-on-automation-as-it-prepares-to-fend-off-uber-and-amazon/
 UPS Pressroom: UPS Tests Residential Delivery Via Drone Launched From atop Package Car
 Zipline introduction video
 Unmanned Aircraft Systems (UAS) Registration Task Force list of members