Clear Prop #13 | Middle-Mile Logistics, Aerialoop, and Llamas
FEATURE: Exploring Middle Mile Cargo Operations with Urban Air Mobility Across Metro Areas
Before we dive into middle-mile drone logistics, I would love to personally invite you to the annual Forum 80 by the Vertical Flight Society in Montreal this week. Anyone who is moved by academic research into rotorcraft and eVTOL knows that the Forum is the greatest conference out there for research papers & technical sessions. Tickets here.
I had the wonderful opportunity to visit Ecuador back in February, engulfing myself in the culture & nature of this beautiful country. From cloud forests teeming with life to the best cocoa you will ever taste in your life, Ecuador is a gem of a place. Not only are the people welcoming, but you can easily make long-lasting friendships with the other native inhabitants of this land: llamas, alpacas, guanacos & vicuñas.
Besides the exquisite beauty of Latin America, there is significant opportunity for venture, both in hardware and software. Being largely a developing market, the lack of sufficient infrastructure in some regions means that novel tech can leapfrog, skipping expensive infrastructure, much like how certain African markets raced past through landlines with mobile telecommunications technology. Drone-powered logistics is one such leapfrog with potentially asymmetric returns to society, entrepreneurs, and venture capitalists.
When I arrived in Quito - which is the highest capital of the world at 2,850 m (9,350 ft), depending on if you count La Paz or not - I had a warm welcome from Pedro Meneses, the CEO and co-founder of Aerialoop. Pedro is a 5x serial entrepreneur, a graduate of Embry Riddle Aeronautical University, and a visionary with a strong sense of the tactical & operations required to build a Future Vision product (as in Sequoia’s product-market fit framework).
His most recent startup, founded in the middle of the pandemic, is a drone OEM and operator running one of the highest throughput beyond-visual-line-of-sight (BVLOS) operations in any dense urban environment around the world. Aerialoop conducts an average of 400 flights a week across 5 hubs using a fleet of 10 ALT6-8 UAS, with an impressive level of automation that is only the envy of companies operating under FAA or EASA jurisdiction. In certain respects, Ecuador’s civil aviation authority (DGAC) is more open-minded and innovative than its northern counterparts.
Let’s talk about how operations actually look & feel like on the ground. I was fortunate to be invited to the Aerialoop hub at Hospital de los Valles, a major hospital serving more than 25,000 homes in the southeastern part of Quito. Aerialoop has partnered with the hospital to transport medical samples from a collection center to the processing lab, cutting down a journey of 1.5 hours to 7 minutes (!)
As I arrived, the first thing that caught my attention was the simplicity of the ground infrastructure, takeoff & landing pad, and the number of employees leading the operation. The setup is the following: a medium-sized trailer housing the staff, monitoring equipment (operations + weather), and the payload inventory; a landing pad made of turf with Precision Landing System devices at each corner; and 2 employees that are actively monitoring the operation.
As Pedro started telling me about some cool operational statistics, pretty soon I picked up visuals on the ALT6-8 drone approaching at altitude. Immediately, I noticed how quiet it was enroute. As the drone transitioned from horizontal flight (think an airplane) to vertical flight (think a helicopter), it approximately centered itself over the landing pad and started to descend as in an elevator. At around 50-60 ft, it stopped and corrected to precisely align with the center of the landing pad. As it was executing this lateral maneuver, Pedro told me that this is the moment that the drone switches from GPS navigation to the Precision Landing System hardware on the ground.
As the drone landed, the 2 staff members quickly went over to the drone to 1) pickup the incoming payload, 2) attach the departing payload, and 3) execute the post- and pre-flight checklist. 5 minutes into this, the flying machine was back on the skies again, destined towards the next hub in Aerialoop’s network. To manage all of this, a central operations hub at the Aerialoop controlled the network with human intervention mainly needed for off-nominal conditions.
Fast turnaround, automated landing & takeoff, and minimal human touch is the name of the game.
What is most impressive about Aerialoop is how sophisticated their operations are in a high-altitude urban setting, especially from an automation and flight volume perspective. It is also insane that not many know about it. And what is more impressive from a venture standpoint is that Aerialoop has only raised a bit more than $5M to get to 1500+ flights a month while last-mile delivery companies garnered 10s and 100s of millions dollars (Manna = $40M+, Matternet = $74M, etc.), without achieving such scale in an urban setting. This demonstrates how emerging markets can present true, large opportunities, especially in hard tech / deep tech. Arguably, some of these can be at a state-of-the-art more progressive than their American or European counterparts.
Although what Aerialoop has achieved is exciting, there has not been much attention paid to the middle-mile logistics space, neither from VCs nor the AAM community in general. There are at least 13 companies building hardware targeting this use case, with $470M in venture & grant funding. To put it into perspective, this amounts to a bit over 1/20th of the funding that passenger eVTOL has attracted at $8B+. More funding (although not as much compared to eVTOL startups guzzling through $1B+), will be needed to make real impact here, on the order of 10s of millions $ and perhaps low 100s.
As you will see in the next section, there are multiple benefits to deploying middle-mile logistics drones on a network from a time, cost, geo coverage, and emissions perspective.
Exploring Middle Mile Cargo Operations with Urban Air Mobility Across Metro Areas
In this paper published by Purdue, the researchers investigate the viability of introducing eVTOLs to existing ground logistics networks in the US. Focusing on 6 cities across NYC, SF, Denver, Cleveland, Orlando, and Dallas - which are logistics-rich regions - a Vehicle Routing Problem (VRP) is formulated specifically for airport-to-distribution-center trips. The resulting network is analyzed across financial cost, value of time, and emissions with insights on where and under what conditions eVTOLs make sense for middle-mile logistics.
Key takeaways:
Value of Time (VoT) associated with a particular package (high VoT = urgent, low VoT = non-urgent) is the primary determinant of whether it makes sense to introduce eVTOLs to a route. For high VoT routes where the goods to be delivered exceed truck capacity but are not enough to fill the next truck, eVTOLs reduce time and cost, increasing demand for aerial logistics.
Cities have different “activation values” - in other words, minimum VoTs - when eVTOL utilization becomes significant. Cities such as Denver have a VoT of $130/hr, above which eVTOL makes sense. On the higher end, NYC or SF have their activation VoT at $175/hr. This means that for an urgent good with a VoT - let’s say, at $150/hr - demand will be sufficient to transport it with an eVTOL in Denver but with a truck in NYC for the same package.
For most cities, combining eVTOL with trucks reduces emissions on a per km basis. However, truck-only logistics networks have generally lower emissions than truck & eVTOL combination ones on a per kg basis. This means that for cities that have large distances, introducing eVTOLs can reduce emissions significantly. Conversely, eVTOL-only networks generally perform worse across all.
The sustainability of the electric grid of a city matters significantly when determining the optimal mode mix of logistics.
Effective cost (operational cost + value of time) is a good proxy for the emissions of a certain route or network. Minimizing this generally minimizes emissions as well.
The BFD: Adding a sub-regional aerial mode to middle-mile logistics can decrease cost & emissions, make same day deliveries faster encompassing more goods, and in general introduce redundancy to the network. However, there is lack of 1) academic and 2) venture interest into this space. There are only a handful academic papers like Gunady et al. investigating this use case whereas last-mile deliveries and passenger eVTOL have 1000s of papers written about them. This correlates to the relatively small amount of startups (13+) with meager investment ($470M). Therefore, strong research is needed as a foundation for drone-powered logistics to takeoff.
This edition’s sponsor is Vertical Flight Society. VFS is an amazing resource that I use to access leading technical papers and workshop decks for my work. Whether you are an investor, engineer, researcher, or entrepreneur, becoming a VFS member can give you an asymmetric advantage in the AAM space.
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