Drone deliveries become reality as China races to take the lead

An employee prepares a JD.com Inc. drone during a package delivery demonstration at a launch pad of the company's drone testing site in Xi'an, China, on June 19, 2018. PHOTO: BLOOMBERG

BEIJING (BLOOMBERG) - The day after Chinese e-commerce giant JD.com Inc's mid-year sale, a company drone took off from a playground in the city of Xi'an to deliver one of the orders in a football-sized box to a village in the mountains to the south.

The six-rotor craft is one of about 40 that JD.com designed to cut delivery times for items such as smartphones and food to remote areas where land transport is too expensive or slow.

JD.com is racing companies from across the world to develop unmanned aerial vehicles (UAVs) with the strength, range and reliability to deliver goods on a large scale and solve the expensive "last-mile" problem for couriers.

What sets China's efforts apart is its ability to assemble all the other parts needed for drone deliveries, including the regulations, infrastructure and the world's biggest e-commerce market.

And to make all those work together, it needs data.

So last year, the Civil Aviation Administration of China (CAAC) gave the go-ahead for JD.com and SF Holding, the country's biggest express-delivery company, to start sending packages by drone in certain rural areas.

The idea is to build a network that includes not only small drones for final delivery, but a whole system, including large autonomous fixed-wing planes that take off from small airports or landing strips to ferry bulk shipments between warehouses.

China's killer advantage is the market. The country has both the advanced drone technologies and millions of consumers living in remote areas that are hard to get to - sometimes impossible to get to - by truck.

China had more than 590 million "rural" residents at the end of 2017, according to the statistics bureau.

"People living in mountainous regions hardly accessible by ground transportation also have the right to shop," said Cui Zheng, a manager overseeing JD's drones programme in northwest China.

"We are giving them the same shopping experience, same price, by flying drones."

The race for drone deliveries in China is being fuelled by competition between JD.com and rival Alibaba.

Alibaba's lighter business model means it relies on partners to make deliveries, but its logistics division Cainiao has partnered with Beihang Unmanned Aircraft System to develop cargo drones.

One model being worked on by the drone company is capable of carrying a ton of goods more than 1,500km.

Ele.me, Alibaba's food delivery arm, gained approval in May to test drones in a large industrial zone.

In the United States, the Department of Transportation in May selected 10 state, local and tribal governments to test commercial drones in partnership with companies including Intel, Uber Technologies, and Qualcomm.

One company not listed in the trial was Amazon.com, whose Prime Air unit is a leader in drone delivery development. Amazon has been testing drone deliveries in the United Kingdom since 2016.

Drone use by JD.com and SF is still only a tiny fraction of their operations, but for the Chinese government, the technology offers a way to help alleviate poverty in rural areas and narrow the wealth gap with urban centres.

It could also make China a model for other governments looking to draft regulations for the coming swarms of civil drones.

This is "a key opportunity for CAAC to gain a greater say in international aviation industry and overtake peers", the civil aviation administration said in a written response to Bloomberg News.

JD.com, which has clocked up over 5,000 hours of drone flight time, said parcel delivery costs in rural backwaters can be five times as much as in cities.

Neither JD.com nor SF would say how much could be saved by flying drones, but they expect costs to be less than those with human delivery once the technology is ready for wide-scale use.

In one extreme case, a courier has to climb up and down a mountain for four hours to deliver a package to a village on the edge of a cliff, said Cui. A drone can do the trip in minutes.

SF aims to integrate the small last-hop flights with bigger drones relaying goods to distribution centres and traditional cargo planes, to reach a goal of ensuring all deliveries within China are completed in less than 36 hours.

"Drones flying one or two tons of goods on regional routes could bring down transportation costs in underdeveloped areas to a level similar to ground transportation on trunk routes," said Li Dongqi, a group vice-president responsible for drone operations at SF.

Fixed-wing drones would typically operate from small airports used by helicopters, light aircraft and private jets, or from purpose-built landing strips at company warehouses.

JD launched its first fixed-wing drone during its annual mid-year shopping bonanza on June 18 and will use it to fly time-sensitive, high value-added goods. SF has been test-flying similar models since last year.

In March, the CAAC released regulations for commercial drones that require operators to apply for a licence for craft used for aerial spraying, imaging and performances.

However, the rules do not apply to drones for deliveries or transporting passengers, for which the regulator is still collecting data before drafting rules.

"It would be too much of a drag for bigger drones to be regulated the same way as manned aircraft," Cui said, adding that a lot of current safety requirements, such as life-saving equipment and display panels, would not be necessary for a UAV.

Governments in other countries are also developing rules, but huge challenges remain. In the US, regulators are trying to address how to create a low-level air-traffic system to ensure drones do not hit one another or traditional aircraft. Other problems include a standard for communicating with the craft, safety and privacy concerns.

Even in China, the CAAC does not allow drones to fly at night, in the rain or in more than a light breeze.

"We need to look for more places for drones to fly to test its capability, identify risks and figure out how to respond to these risks." said SF's Li. The CAAC can only produce a clear set of rules for bigger drones from the troves of data collected from test flights, he said.

Cui said getting bigger drones up to the sky will be a priority for JD.com this year. The company also has trial services for UAVs in Tanzania, Indonesia and Thailand.

Li said SF is seeking approval from the CAAC to launch more trials in sparsely populated regions, especially for bigger drones.

"We are exploring an area that has no rules," said JD.com's Cui. "There's chaos and uncertainty, but eventually there needs to be regulations."

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