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18th of June 2018

Economy



How e-commerce with drone delivery is taking flight in China

LATE on a Monday morning the village of Zhangwei is quiet. Chickens scratch and cluck at the side of the road. Workers use wooden spades to spread grain on the highway to dry, using half its width so that traffic can still pass on the other side. Yet at the community centre at the village’s heart, two objects hint at a feat of ultra-modern logistics about to unfold: a circle of green astroturf laid down in the central courtyard, and a billboard on the front of the building bearing the logo of JD.com, China’s second-largest online retailer.

A low whirr breaks the stillness as a spiky dot appears on the horizon. The drone arrives overhead with a roar, hovers for a moment, then lowers itself towards the green circle like a mantis, three sets of propellers churning the air into whorls of straw and dust. Slung beneath it is a red cardboard box branded with JD’s cheery dog mascot. Just a few feet above the ground, the drone drops the box then zips back up into the sky and disappears. The spectacle is over in 20 seconds.

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It is a link in a new kind of logistics chain, the world’s first operational drone-delivery programme. While Amazon, an American company, has put out numerous promotional videos on its drone-delivery plans, it will not start commercial operations until at least 2020. Meanwhile, JD.com has spent the past year building a real drone-delivery network covering 100 villages in rural China with 40 drones. Zhangwei currently receives a couple of drops each day, each box containing several packages ordered through JD’s shopping app. Thanks to JD’s drones, which operate autonomously with no human guidance but are monitored remotely, villagers in Zhangwei can expect delivery on the same day that they place an order, like urban shoppers in Beijing, New York or London.

The practicalities of drone delivery only make sense in rural settings. Flying in chaotic urban environments is too difficult for existing drone technology. Densely populated cities generate sufficient orders over a small area that they can be aggregated into daily, or even more frequent, deliveries by van. Batching sparser rural orders in the same way would result in multi-day or week-long delivery times.

Some 600m Chinese live rurally and their shopping habits are encouraging the e-commerce boom, according to official figures. Online retail in rural areas grew by 39% in 2017, up to 1.24trn yuan ($183bn). JD sees upside in providing fast, reliable delivery to the countryside, helping it to take a larger slice of this business.

It is still waiting to earn back its investment in drone-delivery infrastructure, although it says that making a delivery by drone costs a fifth of the price than by man-and-van, once the driver’s labour is taken into account. Liu Qiangdong, JD’s chief executive, says drone delivery will cut costs by 70% once it is scaled up across the country. Villagers tend to buy washing powder, accessories for their phones, maternity goods and fresh food. The firm has made 20,000 such deliveries to date.

Suqian, which is near Zhangwei, was chosen as JD’s first drone delivery hub because of the region’s flat terrain, which makes drone flight easier. The city is also the home town of Mr Liu, JD’s chief executive, who started the programme there in an effort to speed its development. The firm runs two drone-dispatch centres. They cover 15 villages between them. There are more drone bases in Shaanxi province, covering a total of 100 villages.

Once the drone’s cargo hits the ground, its contents pass over to the “drone postman” for delivery. This is either a local JD promoter, whose primary job is teaching villagers how to use JD’s shopping app, or a worker hired on China’s leading crowdworking platform, Dada. In Zhangwei JD’s local promoter, Zhang Xiaoyan, takes possession and rings the owners of the packages to see if they are at home. Only one is, so he leaves the other two at the local shop and sets off on foot to the Jiang household. The son, who placed the order, is not at home, so his mother accepts it for him. It is a phone case, ordered the previous day. Mrs Jiang says she likes the drone-delivery programme because it can get products to her door so quickly, but she would not want there to be many more of them flooding the skies.

JD may have added drones to daily Chinese village life, but whether they will make financial sense for the company over time remains to be seen. Current models of drone are pricey, although JD says the cost will gradually come down as it scales up the network and builds more drones (it plans to sell those it makes to other firms, as well as use them for its operations). The government approves of its operations in rural areas, and is planning to build a new train station in Suqian next to JD’s drone base. If JD can use drone delivery to cut its costs and attract rural shoppers, that will help the firm compete with its arch-rival in e-commerce, Alibaba, which has not, as yet, seen the value of drone delivery. JD hopes that will prove to be a mistake.

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