For those of you who would prefer to listen:
Flying packages are coming to a city near you. Amazon announced it is expanding its drone delivery to over 500 cities and towns across the country by year’s end. Your Amazon orders could start arriving to your backyard by air.
This is pretty wild stuff. Amazon drone delivery is 13 years in the making. It was Founder Jeff Bezos’ vision. CEO Andy Jassy is fulfilling it. The airborne expansion is expected to increase Amazon’s drone delivery footprint by 6X. That means nearly 1 Million more customers would be eligible for deliveries by drones. The company indicated a wide range of products would be available in this program, from groceries and electronics to household goods and medicine. In some cases, the deliveries could arrive in less than an hour. It’s just the beginning.
Of course, the natural inclination is to think this could create a whole bunch of chaos in the sky. The FAA (Federal Aviation Administration) is all over it. Amazon has been working closely with the Federal regulator since 2020. The innovation has really taken off since, pun intended. The FAA just proposed rules that would make it easier for certified operators to “fly drones beyond a pilot’s visual line of sight”, a change companies say could significantly reduce costs and allow services to expand more quickly. And expansion is happening.
Prime Air operates under the FAA Part 135 certification. It’s the same regulatory framework used for commercial aircraft. These delivery drones use cameras and sensors to navigate routes. They attempt to bypass obstacles through a Detect-and-Avoid system that independently monitors surrounding airspace. Amazon states the cameras are used only for navigation and obstacle detection and are not monitored or used to track individuals. Of course, these days cameras are everywhere, and who knows what is being tracked. Amazon says its drones can also operate in light rain and are fully electric. Reviews indicate each delivery typically generates about 30 seconds of “noise” during the drop-off. There have been some complaints on this.
Amazon Prime Air is already operating from 11 delivery sites across the country. They’re as far north as Detroit and deep south in Louisiana and Texas. They operate in the Arizona desert and the Florida coast. Next up are Chicago, Cleveland and Atlanta, among others. Don’t expect any furniture or pianos delivered by drones. The vast majority of the drone delivery items weigh less than 5 pounds and can fit inside a shoebox. The flight range is generally within 7 miles of its fulfillment centers.
Amazon says its Prime members will get free drone delivery on orders of $50 or more. Orders under $50 currently cost Prime members $2.99, while customers without a Prime membership pay $4.99. Sounds like a pretty good deal.
Amazon is not alone in the drone delivery space. Alphabet’s Wing delivery business already cleared 1 Million commercial drone deliveries earlier in the year. The service is operating in 20 U.S. markets through partnerships with Walmart and DoorDash, among others. Drone delivery startup Zipline is ahead of the pack. The young South San Francisco company operates on four continents and has made 2 Million deliveries so far. It has a partnership with Uber Eats in America as well as Walmart.
Apparently, you can choose the specific landing spot: Front yard, backyard or driveway. The drone will use a cable to gently lower the package to the ground. The Alphabet drones hover around 23 feet in the air while slowly lowering the boxed items to the ground. However, Zipline drones stay 300 feet in the air upon final ascent. The company says it lowers a motorized “droid” container on a tether. This mini-droid uses tiny thrusters to silently guide itself down, gently places the package on its predetermined target, and retracts back up to the main drone.
Neither Amazon nor Walmart break out their drone delivery revenues to the public. They’re still considered “strategic” and “exploratory”. But drone delivery is expected to be a $3-5 Billion Market opportunity worldwide. Most estimates I have seen indicate it costs the retailers between $12 and $15 per delivery. That compares to roughly $2 for ground shipping. But both companies believe what all innovators do: that automation and scale will bring those costs down while securing and maintaining customer loyalty.
Walmart reported its Q2 earnings this week. It beat the Street. What’s more, the retail giant raised its outlook for the rest of the year. However, there was a snag. Sales in the U.S. missed expectations. Americans keep feeling the pressures from higher food and energy costs. Walmart has been pulling levers to try to keep prices lower. It’s been a challenge. Management said its customers keep spending, but they’re spread thin. The American Consumer is far more scrutinizing on what they purchase these days. More and more people are embracing the low-price leader. Walmart and Sam’s Club memberships grew markedly in the quarter.
Walmart is expected to expand its drone delivery service to the Bay Area later this year. That will be its first foray in California, using Wing as its delivery partner. Walmart currently offers drone delivery in Georgia, Florida, North Carolina, Texas and Arkansas. The service is coming to San Diego soon too. Wing was started in 2012 under Google’s “Moonshot” division. It’s the same division that developed its smart-glasses and driverless cars.
Speaking of Google’s driverless cars, the company recently launched its new vehicles on the road. It’s called “Ojai”. They’re basically high-tech minivans. Ojai possesses Waymo’s 6th generation self-driving system which includes Google Gemini for rider usage inside the ride. I saw a couple of them cruising around San Francisco this week. Waymo is reportedly on pace to have over 5,000 of these new Ojai vehicles cruising along American streets by the end of the year. That would more than double the number of Waymo Jaguars currently in circulation. Up in the sky and driverless on the road, the digital age is changing so much of the things we do.
The Market hit some serious turbulence this week. It rallied at the start when the Treasury Department announced it would be buying longer-dated maturities in order to provide, what it stated, more liquidity. Bonds rallied as yields fell. Stocks got a boost too. It didn’t last.
The Market doesn’t seem keen on this type of yield curve control. The Bond Market pushed back, sending yields higher again. It has been exercising its discontent with the mountain of debt, which keeps building. This is really important stuff as we speak about the plumbing of the Financial system.
Stocks rallied to close out the volatile week. Leadership keeps rotating below the surface as the S&P goes sideways. Get used to it.
The price of money has risen as the aggressive borrowing shows no signs of stoppage. We covered this topic extensively last week. Here’s a link in case you missed it or would like a refresher on our take on the situation. Keep in mind, bond yields have followed the price of Oil pretty much all year. The conflict in the Middle East is 6 months in, with no clear signs of an ultimate outcome. It weighs heavily. It’s also an election year. Higher Oil has been a nag on pretty much all. It’s an important reminder, despite all developments in this Digital Age, the world still runs on crude.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
