Deutsche Bank: drones could save Amazon 80% on delivery costs

Amazon could save up to 80% on shipping costs for last-mile delivery services using its autonomous drone delivery service, according to a recent study by Deutsche Bank. On average, delivery of a shoebox-sized package in the US is said to cost around $6 to $6.50 with high-end delivery services like UPS or FedEx; Deutsche suggests drones could deliver the same for less than $0.05 per mile, however, it does not take into account the cost of covering lost, damaged, or intercepted parcels. While the drone delivery service is still subject to tests and regulations, Amazon-owned Kiva robots, introduced into 13 of its fulfilment centres in 2014 have reportedly cut operating expenses by up to 20%; Deutsche suggests a one-off saving of $800m could be achieved if Kiva robots were deployed in the remaining 110 centres and sees significant potential for the robots if Amazon opens mega-fulfilment centres in Asia.

Reuters/Gus Ruelas / Amazon

It has been over two years since Amazon CEO Jeff Bezos first revealed his plan to launch a drone delivery service, called Prime Air, by 2017 or 2018.

There are still plenty of tests and regulations to deal with to get the program fully up and running. But there's a lot to be excited about if you're Amazon.

One of the biggest benefits would be the sheer amount of savings in shipping costs. According to a note published by Deutsche Bank on Wednesday, delivery automation, using drones and robots, present the "biggest cost reduction" opportunity for Amazon, with an estimated 80% cost savings coming to last-mile shipping, or the shipment between the final storage hub and the customer's home.

To illustrate this point, Deutsche Bank gave the following cost samples for a typical shoebox delivery today:

Premium ground like UPS or FedEx: $6 to $6.50

Mid-tier carriers like OnTrac: $4 to $5

USPS for last mile alone: about $2

Robots/drones: less than $0.05 per mile of delivery

"Robots and drones would reduce this to near-zero immediately and allow for much faster delivery times," Deutsche Bank wrote in the note.

The reduced shipping cost would directly benefit the customers. According to ARK Investment Management, Amazon would be able to charge just $1 to have a drone deliver a package in 30 minutes or less. Amazon plans to start with small packages, weighing less than 5 pounds — and given that 86% of orders shipped by Amazon weigh less than that, the benefits are tremendous both ways.

"Once the regulatory hurdles are cleared, Amazon is likely to ramp up using robots and drones for delivery significantly," Deutsche Bank wrote.

Of course, one issue that's not addressed in these estimates is the added cost that could result from drone-delivered packages that are lost, damaged or intercepted — which might become an issue as drones take to the skies.

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Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.