What You Need to Know about the Last-mile Automated Delivery, Droids, and Drone Industry
Last-mile delivery means the last lap of the product journey: transporting products from a distribution center—usually a retail store or warehouse—to the end consumer. There’s an increasing need to automate this process, especially because of the rising demand for contactless delivery, amid the Covid-19 pandemic, and also due to the massive labor cost savings enjoyed by automating the process.
Our SPEEDA Edge coverage looks at three main methods used to automate last mile delivery: autonomous delivery vehicles (ADVs), droids, and, drones. So, ADVs are self-driving vehicles that carry packages. Most of the trials today are done with a safety driver on board to take control if needed, but we can picture a future where fully-autonomous vehicles without a safety driver coming to your doorstep to deliver your packages.
Droids are mostly small box-shaped self-driving robots that use sidewalks to navigate at a walking pace, and drones, as you all know, are unnamed aerial vehicles that are configured for cargo delivery.
Droids and ADVs are being trialed and piloted on the road to some extent, and just recently drones followed suit. It’s not just startups that are developing these technologies but also giant incumbents, like Walmart, FedEx, Google, and Amazon—showing the industry’s future potential!
We valued the total addressable market (TAM) of 60 billion dollars for this industry, which remains almost entirely untapped because these technologies are not yet commercialized at scale, especially given the need for regulatory approvals. Therefore, the 5-year CAGR isn’t calculated.
As for funding, even though most of the solutions are not yet fully commercialized, funding picked up, especially after the Covid-19 pandemic. We saw retail giants like Walmart and Ocado also investing in the space recently. Today, the total industry funding stands at 4.5 billion dollars, with half of the funds raised in 2021 or after. Around 18% of the funds came in the first eight months of 2022.
If we look at the segments, the ADVs segment carries the highest funding with a total of USD 3 billion raised, followed drones with USD 928 million dollars raised to date, and then by droids, with approximately USD 600 million dollars.
Let’s go over a few noteworthy startups, beginning with Nuro.
It is the most prominent startup in the ADV space and by far the most funded startup with 2.1 billion dollars raised. In its latest Series D funding round last November, it raised 600 million dollars, to commercialize its offering nationwide and scale production—marking one of the largest funding rounds in the industry. Nuro was co-founded by ex-Google self-driving car project engineers, giving them a competitive edge over its rivals. Nuro was also the first to get permission to conduct commercial pilots in California and could kick off its commercial operations with 7-Eleven end of last year. They have also conducted many trials and pilots in partnership with other major companies like Kroger, Domino’s, Walmart, and even FedEx.
We believe the droid segment has the highest potential to commercialize at scale compared to the other two segments, especially given the somewhat lenient regulations that apply to them. Among these startups, Starship has deployed delivery robots across the US and Europe, becoming one of the most prominent startups in the industry and one of the first companies to test a working droid commercially. It is also the highest-funded startup in this segment, and today they operate about 2,000 droids across more than 25 universities in the US, and several cities in the UK, Finland, and Estonia.
Then we have the drone segment, and perhaps the most notable one here is
Zipline specializes in drone-based medical supply deliveries and is by far the most funded private company in this segment. They have already conducted more than 340,000 commercial deliveries to date—mostly in Africa where their primary operations are. But recently, Zipline got permission to start commercial trials in the US also—and so far that’s the only drone startup in the US with a commercial deployment permit. Other companies with this permit are all incumbents like Google, Amazon, and UPS. With that permission, Zipline is already planning its commercial operations and has struck deals with Walmart and several other healthcare companies for this.
Looking at the challenges that somewhat restrict industry growth, the first one is, of course, getting the necessary approvals from authorities.
For droids, regulations are somewhat lenient and relatively widely accepted as they only travel on sidewalks at a walking pace—in fact, today, more than 20 states allow these robots. But getting the necessary approvals for ADVs and drones is difficult. Individual companies must apply and obtain approvals to trial ADVs in most states and drone companies also need Federal Aviation Administration’s approval to start operations.
This issue is mainly owed to ADVs using public roads to navigate and drones using the airspace which might result in privacy concerns as well. Also, another key challenge the industry faces is the possibility of system malfunctions and security breaches—which is rare but a possibility. For example, a Kiwibot robot burst into flames once in California back in 2018—and this issue was later resolved by incorporating software to monitor battery health in each robot. So developers must also be mindful of those things when building their products.
However, these hurdles are not holding back ecommerce, retail, and logistics companies alike to stay without exploring these technologies. This list includes companies like Walmart, Unilever, Amazon, FedEx, and many more who increasingly partner with the tech developers or develop their tech to try out autonomous deliveries for their customers.
Also, remotely-controlled droids are another trend that’s gaining momentum these days. They have the potential to reach commercialization faster because state and local governments have fewer restrictions on them compared to fully autonomous robots. We cover several such remote-controlled robots in our hub—key players are Coco Robotics and Tortoise, which is another delivery droid maker.
One of the biggest questions you might have is how traditional industries are impacted by these technologies.
Traditional industries like logistics, restaurants, retailing, and even ecommerce are seeing a value-adding opportunity thanks to these developments. For example, retail giant Walmart has partnerships with last-mile delivery automation companies across all three segments for various delivery trials. Other major companies like FedEx, Kroger, Domino’s, 7-Eleven, Albertsons, Grubhub, and even European players such as Tesco, and Co-op also have partnered with these startups along the way.
Additionally, FedEx, UPS, and Amazon have their last-mile delivery automation solution—which we believe came about given the promising outlook of the industry. None of these solutions can be deployed yet at scale but are increasingly gaining traction in the market today.
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