Reforming Regulatory Restrictions for Cargo Drones

About the author: Eleanor Thornton is a Senior International Trade Specialist at the Center for Economics and Market Development in the Bureau for Development, Democracy and Innovation at USAID.

The growth of the digital economy has allowed Micro, Small, and Medium Enterprises (MSMEs) to easily market their products and access new domestic and international customers. This new connectivity brings many opportunities for MSMEs but also presents challenges for finding solutions to the high logistical costs of delivering goods to diverse and new markets. While vessel freight continues to dominate transport of large volume shipments, MSMEs using ecommerce marketplace platforms rely on faster air cargo shipments to satisfy customers who expect goods to arrive in a matter of days instead of weeks. Unfortunately, air cargo can be prohibitively expensive for MSMEs, and costs may only increase as the air industry faces considerable pressure due to a shortage of pilots. Additionally, last mile delivery to a customer’s door (whether domestic or international) further increases costs, especially in congested urban areas. To address these market constraints drones are increasingly being tested and deployed both for larger air cargo transport and local last mile deliveries.

Drones have the potential to change how goods are moved and how quickly they arrive. To better understand how drones will impact the logistics area, a common understanding of drones is needed. A drone, strictly speaking, is an unmanned aerial vehicle. Currently, drones have been used primarily for the delivery of small packages. However, there are airplane designs optimized for cargo transportation that are being made and tested for long distance flight and will rival the 777 cargo planes.

There are several advantages to these unmanned vehicles, such as cost, human capital, higher reliability, and savings in time. Drones would help alleviate the issue of pilot shortages in the air cargo industry since one pilot can remotely fly several drones from one location at once. Presently, a crew flying a cargo plane, depending on size of plane, consists of at least two pilots and more on a longer haul. Therefore, piloted drones would diminish the number of pilots required and would decrease costs for the industry. Once drones become the norm in air transport, a higher volume of goods can move more quickly through logistics routes. This will allow MSMEs to provide faster and cheaper deliveries. “The future cost of drone delivery will be up to 80% lower than current charges for next day delivery.”[1] As with all innovations, drones are facing many antiquated regulations, and regulators are struggling to adapt existing laws to accommodate the new technology. Drone regulations typically cover four basic areas: pilot licensing, aircraft registration, restricted zones of operation, and insurance requirements.[2]

In some USAID partner countries, drone use for commercial application is banned entirely, or the regulations are so strict that it is effectively banned (e.g. requiring the pilot to have a visual line of sight at all times of operation).[3] Even in countries with relatively friendly regulatory environments such as the United States, companies like Amazon find it difficult to implement drone-based local deliveries in key urban areas due to both existing regulations on restricted zones of operation (often banning operation in heavily populated urban areas) and already overcrowded airspace. In Rwanda, which has a similarly friendly regulatory environment, the company Zipline has successfully used drones to deliver medicines and other small packages. Unfortunately, it has limited its operation to more rural areas to avoid licensing and regulatory restrictions that apply to congested urban areas.

To expand the application of drones beyond health and humanitarian work and drive down transport and logistics costs for MSMEs, USAID can play a critical role to tackle the regulatory environment around drone use. USAID began testing the application of drone technology in 2014 by mapping artisanal mines in support of the Kimberley Process, an international initiative aimed at preventing the flow of conflict diamonds. USAID has continued working with drones, primarily in Africa where it has expanded its routes facilitating the delivery of medicines and testing of medical samples. USAID has been at the forefront of using this promising tool to provide assistance in hard to reach areas.

The Trade Team in the Center for Economics and Market Development in USAID’s Bureau for Development, Democracy and Innovation, is exploring ways to work with partner governments to improve the regulatory infrastructure and promote the growth of commercial drone technology domestically and regionally, driving down logistics costs, and increasing MSME access to new markets and economic opportunity.

[1] https://levitatecap.com/levitate/wp-content/uploads/2020/12/White-Paper-v4.pdf P.129

[2]https://www.rand.org/content/dam/rand/pubs/research_reports/RR1700/RR1718z3/RAND_RR1718z3.pdf

[3]https://www.rand.org/content/dam/rand/pubs/research_reports/RR1700/RR1718z3/RAND_RR1718z3.pdf