Drones can deliver goods faster, cheaper and more sustainably than traditional methods. But how are they shaping the global supply market and what are the benefits and challenges of using them? Reed Smith partners Laura-May Scott and Gregory Speier discuss the current state and future trends of the drone delivery market, the key drivers and barriers of its growth, and the legal and regulatory implications of this emerging industry.

This podcast is part of the From A2B: Decoding the global supply chain series, where Reed Smith lawyers share insights on the latest developments and issues affecting the transportation sector.

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Transcript:

Intro: Trading Straits brings legal and business insights at the intersection of the shipping and energy sectors. This podcast series offers trends, developments, challenges and topics of interest from Reed Smith litigation, regulatory and finance laws across our network of global offices. If you have any questions about the topics discussed on this podcast, please do contact our speakers.

Laura-May: Hello and welcome to the Reed Smith podcast channel, Trading Straits. My name is Laura-May Scott, and I'm a disputes partner at Reed Smith, working out of London.

Gregory: And I am Greg Speier, a partner in the transportation industry group at Reed Smith, working out of our Princeton, New Jersey office. Today, we will be exploring how technology and innovation are transforming the world of logistics and transportation. Specifically, we will talk about one of the most exciting and also controversial developments in the delivery industry; drones.

Laura-May: So drones, or unmanned aerial vehicles, are flying machines that can be remotely controlled or programmed to perform certain tasks, such as surveillance, photography, or delivery. In recent years, drones have been increasingly used by couriers and e-commerce companies to deliver goods faster, cheaper, and often more sustainably than traditional methods. Today, we will uncover how drones are shaping the global supply market and what the benefits and challenges are of using them.

Gregory: Yep, that's true. And we definitely have a lot to get through today. And it's really fascinating to see how drones are transforming the delivery industry overall. And, you know, this is all new. You know, the drone delivery market is still very new. It's in its infancy, but it's growing so fast. It's growing rapidly. And according to a 2023 study conducted by market research platform, Markets and Markets, the current state of global drone logistics and transportation is expected to reach $16.1 billion, that's US dollars, by 2030. So in about five years, it's going to be a $16.1 billion industry. And that's up from not even $1 billion last year.

Laura-May: Yeah, I mean, that's a compound annual growth rate of over 50%. It's huge.

Gregory: Yep, absolutely. Huge is right. And so what is the main driver behind this growth? It's cheaper, there's more convenient delivery market options, especially in certain industries. Think about e-commerce, healthcare, agriculture, mining. You have all of these industries that are demanding, you know, cheaper, faster, more convenient delivery market options. And then also that's coupled with technological advancements, the hardware, the software, the infrastructure, and all of the largest players right now, the big ticket retailers, they all want to be delivering products by drone, and many are already doing so.

Laura-May: Exactly that. And as a result of that growth, we're seeing key trends coming out of the market. And I'd have to say that the first and most obvious one to me is the development of more sophisticated and autonomous drones as we see the technology develop in the way that you've described, Greg. There's the integration of other drones with other modes of transportation, such as trucks, trains, or ships working together with drones to deliver things. And obviously, there's also the emergence of new business models and regulations that enable and support drone delivery.

Gregory: Absolutely. And from the customer point of view, also, the drones can deliver products faster, cheaper, more convenient delivery options. And think about all the time sensitive and urgent products that could be delivered to remote areas or much more quickly, medicine, food, electronics, urgent items that customers need. Those could all be delivered by drone.

Laura-May: Yeah, and they offer that flexibility and personalization because customers can choose when and where they want to receive their packages and often can track that delivery in real time. So for the couriers themselves, the companies, obviously drones can offer lower operational costs than some of the other more traditional methods of transportation and delivery. And, you know, they can create higher efficiencies, higher customer satisfaction if obviously the job is done correctly. And they can often reduce fuel consumption, labor costs, vehicle maintenance, and avoid traffic jams and road accidents and theft, et cetera. There are so many benefits.

Gregory: That's so true. And another big issue where there's another benefit of drone operations, sustainability. Delivery can reduce the carbon footprint. I mean, just driving down the highway around where I live, you just see trucks and trucks of big retailers. And so if we're able to reduce some of that traffic or customers driving to and from pharmacies or the big box retailers to have so much less pollution and cars and trucks on the road, the impact is potentially huge.

Laura-May: Totally. They also offer, I guess, something, just stepping back slightly, which is the wider social and environmental benefits. They can save lives by delivering life-saving supplies, as you said, such as medicine, vaccines, to rural health facilities, or even to war zones, where there's a significant issue in accessing the land, and drones can get in there and do that more efficiently and safely than any other mode of transport.

Gregory: Yeah, good point. War zones, very timely as well. So that's definitely a great point. Another benefit of drone operations, they will, from my perspective, create jobs, employing drone operators, technicians, entrepreneurs, all who can leverage drones to offer new services or products. So drones could have a positive impact on many aspects of not only the environment, but society as well.

Laura-May: I totally agree. So we're espousing all the virtues of drones, but we should flag also that there are obviously several challenges and risks that drone delivery face, especially as it's an emerging market. And those can be both technical and non-technical.

Gregory: Yeah, it's really important we discuss that. On the technical side, there are challenges. Reliability, safety, and security. Drones, like any product, it can malfunction, crash, be hacked. There could be damage caused to person, property, injury, theft. There are also airspace concerns to ensure drones are not crashing into other drones or drones are not interfering with the airspace of other operations that are out there. And then the potential of nuisance claims. We've already seen a few filed in the U.S. With the interference of drones and the sound and how they interfere. And if you look up to the sky and all of a sudden there's drones interfering with the ground rights of your property. So these are all things that from the U.S. side, the FAA is considering. They are rolling out different blueprints and regulatory frameworks. And they'll continue to do so as drone operations increase and evolve. And we'll talk about it a little bit later. Technology is constantly improving. So there are solutions in terms of having more robust and resilient drones. And then coupled with the implementation of strict quality and safety standards, I really do think that the drone space is ready to take off.

Laura-May: Yeah, I agree. You mentioned airspace, Greg, which is absolutely a concern. And I guess the key issue there that you touched on is that we have to ensure that drones integrate in the right way with the existing traffic management system, because drones can interfere with other aircraft, planes, helicopters, balloons, and cause collisions or delays. And I think as we see more drones emerge over time, we will have to manage that more carefully.

Gregory: Yeah, no doubt about that. And kind of what I see as some solutions to this are, we need the development of a dedicated and coordinated drone traffic management system, but also the establishment of clear and consistent rules and regulations. And there has to be all along the way collaboration with various stakeholders, obviously the government and regulators, but also the airlines and drone operators. And one thing that is noteworthy and worth mentioning is that over the summer in Dallas, Texas. Zipline International and Wing Aviation, they were permitted by the FAA, the Federal Aviation Administration, to deliver packages to customers via drone beyond visual line of sight. BVLS is how we refer to that. And that means that the operators are able to operate these drones so far that they cannot see them. And that's really incredible and is a huge advancement from the U.S. point of view. And these drones were able to do that due to technology, an advancement known as UTM, or Unmanned Aircraft System Traffic Management. And so with UTM, there's a cooperative interaction between drone operators, service providers, and the FAA to make ...