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Same-day shipping & drone delivery may not be feasible: UPS

Amazon (AMZN), Google (GOOG), Macy’s (M) and Bloomingdale's. Those are just a handful of companies trying to make a dent in the field of same-day delivery. Is that feasible? Maybe. But one major shipper says maybe not.

UPS (UPS) is the largest handler of small packages in the world – dealing with 17 million parcels and packages each day. UPS is also a primary shipper for companies like Amazon (which already promises same-day delivery on millions of items under certain conditions).

There’s just one problem – UPS isn’t sure that same-day shipping will ever work at scale – at least on the kind of scale that would make it affordable for you and me. Add drone delivery to the mix and the company uses a dreaded brushoff, calling the technology “niche.” Which isn't to say UPS isn't investigating using drones for delvieries (it may be), just that executives are not entirely convinced it will catch on.

“Same day by definition is something that everyone is trying to figure out right now because that’s the buzz in the market. It’s unsure if it’s scalable, especially if it’s a point-to-point delivery,” said Bala Ganesh, head of retail at UPS. Point to point delivery refers to picking up a package at, say, Macy’s, then dropping it off at your door. That model is hard to scale and inefficient. That’s part of the reason current same-day options tend to skew so expensive.

“We have a pretty robust service called Express Critical that serves the same-day needs in the marketplace,” said Alan Gershenhorn. The problem is, that service is expensive.

UPS and comScore looked at what customers value most when checking out online. Source: UPS/comScore
UPS and comScore looked at what customers value most when checking out online. Source: UPS/comScore

Another problem is that people don’t want to spend money on same-day shipping. When UPS talks to customers (and they even had comScore do a study for them to quantify this) they realized that free shipping was more important than speed. 81% of people told comScore/UPS that a free shipping option was important when they check out online. Only 35% valued expedited shipping options.

As far as drones – which both Amazon and Google are testing – and promises to deliver packages in less than an hour, Gershenhorn doesn’t think that’s reasonable. For starters, air space is highly regulated and it’s currently illegal to use commercial drones in the U.S. (though a handful of exceptions have been made, notably for Hollywood.)

“I think there’s gonna be a place for dones, but I think it’s going to be niche. There’s a lot of things to work out, [like] regulations, [and the] skies,” said Gershenhorn.