Here are the basic assumptions:
– Human upfront cost: $0 (I’m sure it’s not, but let’s give them a big advantage).
– UAV upfront cost: $25,000.
– Human upkeep (salary) per hour: $8.
– UAV upkeep per hour: $4 or $2 (technology gets better, right?).
– Human deliveries per hour: four.
– UAV deliveries per hour: five.
– Profit per delivery: $2.50 (not including upkeep costs).
So how long would it take those UAVs to become better delivery-service values than their fleshy, earthbound counterparts?
Author’s calculations are assumptions only.
A company making deliveries eight hours a day, seven days a week would see an advantage in the cheaper UAV after just one year. The costlier UAV would become profitable in the spring of its second year in operation, assuming we start tracking from the beginning of January.
Admittedly, these are all very rough assumptions, and UAVs may wind up being initially more expensive on an hourly basis than their human counterparts. There are also a lot of extraneous factors, like unlimited free deliveries from Amazon Prime, which would throw a monkey wrench into these assumptions. Replacing ground transportation with aerial point-to-point delivery would, at the very least, broaden the cost-effective range of a pizzeria. Smaller drones won’t be able to replace United Parcel Service, Inc. (NYSE:UPS) drivers and their multi-ton trucks right away, but a concerted development push from drone-friendly executives like Fred Smith and Chris Anderson would certainly be able to devise an unmanned delivery vehicle with superior economics to the big brown trucks over time.
But here’s what I’m getting at — over the long run, automated delivery will wind up being cheaper than human delivery. It won’t matter if these deliveries are ultimately undertaken by UPS and FedEx Corporation (NYSE:FDX) as a service to Amazon or by Amazon directly to cut out the middleman, or if new UAV contractors will spring up to help local restaurants deliver piping hot food rather than those restaurants operating the UAVs themselves. Technology gets cheaper rather quickly. The cost of an employee does not.
“But wait!” you might say, “what will happen to all these delivery folks after the robots make them as obsolete as 18th-century loom weavers?” I’ll be honest: I don’t know. There are a lot of delivery folks at work in the United States. Even if we assume that larger objects will still require some ground-based delivery method, it doesn’t protect the vast majority of people from other innovations like the Google Inc (NASDAQ:GOOG) self-driving car, which is already street-legal in California and Nevada. An automated delivery vehicle might eventually have an automated delivery robot on the back that can pick up a 500-pound box with ease. There’s no reason why automation need be limited to taking things from Point A to Point B.
There are a lot of delivery folks — and delivery-infrastructure folks — at work in the United States. Some of them might become drone maintenance techs, or drone programmers, but many will not, because the tech industry isn’t really as big a part of the American employment picture as most people think:
Source: St. Louis Federal Reserve.
When part of the economic infrastructure becomes more efficient, a number of workers become redundant. They’ll have to go somewhere and find other work. In the short run, it’ll be great for Amazon, Domino’s Pizza, Inc. (NYSE:DPZ), and all the other companies that rely on deliveries for their revenue to have fewer people to pay and more efficient delivery methods to use. In the long run, many of the roughly 4.5 million Americans at work in transportation will be out of work — and that means fewer orders for Amazon products, fewer purchases of delivery pizzas, and fewer incomes feeding into the American economy.