February 2020

In January of this year, the United States Department of Transportation and the National Science & Technology Council released Automated Vehicles 4.0: Ensuring American Leadership in Automated Vehicles Technologies (“AV 4.0”). The report is intended to act as a set of unifying principles across 38 federal departments, agencies, commissions, and Executive offices. It offers guidance and an overarching vision to state and local government agencies, as well as technical experts and industry participants. AV 4.0 builds on AV 3.0, which was released in 2018, and AV 2.0, which was released in 2017.

Consistent across the three iterations of Automated Vehicle reports produced under the Trump administration has been the wholly restrained voluntary/guidance approach, without mandates or true regulation laid down. This “light touch” approach recognizes that much of the regulatory action is taking place at the state level, and voluntarily by industry and other AV stakeholders. The lack of federal enforceability removes the hope of any near-term consensus or consistency to the coordination of states and industry approach to automated vehicles.

As in AV 3.0, AV 4.0 begins with a discussion of guidelines and broad overarching principles that the federal government will recognize when developing AV technology. The three Principles and associated sub-areas are:

  1. Protect Users and Communities
    • (a) Prioritize Safety
    • (b) Emphasize Security and Cyber Security
    • (c) Ensure Privacy and Data Security
    • (d) Enhance Mobility and Accessibility
  2. Promote Efficient Markets
    • (a) Remain Technology Neutral
    • (b) Protect American Innovation and Creativity
    • (c) Modernize Regulations
  3. Facilitate Coordinated Efforts
    • (a) Promote Consistent Standards and Practices
    • (b) Ensure a Consistent Federal Approach
    • (c) Improve Transportation System-Level Effects

While these broader principles are new to AV 3.0, the sub-areas within each principle are a mixture of old principles from AV 3.0, combined with some new government focuses. (The new components are italicized  in the above list) These new components center mainly around the Trump administration’s desire to “Buy American, Hire American,” and bring in new focuses for security, cybersecurity, and privacy. The report does indicate that DOT will establish manufacturing, performance, and operational standards to increase safety in AV testing and integration. Still, the parameters of these standards remain unclear.

However, the majority of the report is devoted to Section III: U.S. Government Activities and Opportunities for Collaboration. The  driving purpose of the report is to provide general descriptions of the vast array of government agencies that are responsible (or will be responsible) for some level of AV-related policies or subjects. The report detail both the big and small ways that federal agencies, departments, offices, etc. will play a role in the development and commercialization of AVs. However, there is no real substantive or specific policy discussion.

The survey of government agency activity (and an appendix with links to government websites and contacts for agencies responsible for AV-related policies) are the real substance added. There is no description or plan of how interagency cooperation will occur, nor is there an overarching plan for the government’s approach to implementation. AV 4.0 is useful as a catalog for the various ways the federal government could interact with AV-policy but gives no further direction to how industry and states should regulate AVs. The DOT continues to kick the can down the road but has thankfully provided a clearinghouse of information on which agencies may be responsible for what activities, and the current efforts underway at the federal level, particularly on research and funding.

This restrained approach could be a good thing, given the rapid pace at which the AV industry is developing. However, there is a great deal more work that needs to be done at the federal level before any of the 10 core principles articulated can be realized. The Department of Transportation has requested public comment on AV 4.0.

Cars are getting smarter and safer. And yet this new breed of automobile remains inaccessible to large parts of the consumer base due to high costs. Some of these costs are a natural result of technological advancements in the automobile industry. Others however may be a product of inefficient market dynamics among car manufacturers, insurers and technology companies – which ultimately contribute to a reduced state of safety on our roads.

Automated Driver Assistance Systems (ADAS) that equip cars with services like autonomous braking systems, parking assistance, and blind spot detection are growing at an exponential rate. The global ADAS market size was estimated to be around $14.15 billion in 2016. Since then, it has witnessed a high rate of growth and is expected to reach $67 billion by 2025. Not only is this good news for ADAS developers, it can also significantly increase road safety. The Insurance Institute for Highway Safety estimates that the deployment of automatic emergency braking in most cars on the road, for instance, can prevent 28,000 crashes and 12,000 injuries by 2025.

The biggest roadblock to the easy adoption of ADAS-equipped cars remains its prohibitive cost. Lower rates of adoption not only reduce the overall safety of cars on the road, but also disproportionately affect poorer people. Unsurprisingly, a study in Maryland found that individuals at the upper end of the socioeconomic spectrum have greater access to vehicle safety features leaving those at the lower end at higher risk.

A significant contributing factor to the continued high cost of automated vehicles is the high rate of car insurance. This seems rather counter intuitive. The technological evolution of safety systems reduces the risk of car crashes and other incidents. Consequently, this was expected to cause a decline in insurance premiums. And yet, costs remain high. Insurance companies have resisted the demands for lowering the cost of premiums claiming that the data about ADAS systems and their efficacy in reducing risk is just not conclusive. Moreover, the industry claims, that even if ADAS systems can cause a reduction in the number of vehicular incidents, each incident involving an automated car costs more because of the sophisticated and often delicate hardware such as sensors and cameras installed in these cars. As the executive vice president of Hanover Insurance Group puts it, “There’s no such thing as a $300 bumper anymore. It’s closer to $1,500 in repair costs nowadays.”

There is no doubt that these are legitimate concerns. An industry whose entire business model involves pricing risk can hardly be blamed for seeking more accurate data for quantifying said risk. Unfortunately, none of the actors involved in the automated vehicle industry are particularly forthcoming with their data. At a relatively nascent stage, the AV industry is still highly competitive with large parts of operations shrouded in secrecy. Car manufacturers that operate fleets of automated vehicles and no doubt gather substantial data around crash reports are loathe to share it with insurers out of fears of giving away proprietary information and losing their competitive edge. The consequence of this lack of open exchange is that AVs continue to remain expensive and perhaps improperly priced from a risk standpoint.

There are some new attempts to work around this problem. Swiss Re, for example, is developing a global ADAS risk score that encourages car manufacturers to share data with them that they in turn would use to recommend discounts to insurers. Continental AG has similarly developed a Data Monetization Platform that seemingly allows fleet operators to sell data in a secure and transparent manner to city authorities, insurers and other interested parties. These are early days so whether these initiatives will be able to overcome the insecurities around trade secrets and proprietary data remains to be seen.

It is however clear that along with the evolution of cars and technologies the insurance industry too will need to change. As a recent Harvard Business Review article points out, automated vehicles will fundamentally alter the private car insurance market by shifting car ownership from an individual-centric model to a fleet-centric one, at least in the short to medium term. This shift itself could cost auto insurers nearly $25 billion (or 1/8th of the global market) in revenue from premiums. It is imperative therefore that the insurance industry devise new innovative approaches to price the risk associated with AVs. Hopefully they can do this without further driving up costs and while making safer technologies accessible to those that need it the most.

The delivery industry is evolving in order to keep up with the rise of home delivery. Arrival, a startup company in the process of building electric delivery vans, plans to add new vehicles to the roads in the next few years. The company plans to offer vehicles with different battery capacities, but the current model maxes out at 200 miles of range. Arrival’s vehicles are expected to carry 500 cubic feet of packages and up to two tons. In order to be competitive with the direction towards automation, Arrival is designing its vehicles to accommodate autonomous systems which will allow for a smooth transition once autonomous driving is more widely used. In the meantime, the vehicle’s Advanced Driver-Assistance Systems (ADAS) will increase safety and operating efficiencies.

Arrival has recently captured the interest of big corporations. Hyundai and Kia announced that they are investing around $110 million in Arrival and will jointly develop vehicles with them. UPS has been a partner of Arrival since 2016 and has both invested and ordered 10,000 of Arrival’s electric delivery vans. UPS was motivated to purchase these vehicles because of its efforts to cut emissions and delivery costs, both of which Arrival contends its vehicles will do. UPS plans to begin using some of these vehicles later this year.

The Arrival vans along with UPS’s Waymo project “will help us continue to push the envelope on technology and new delivery models that can complement the way our drivers work,” said Juan Perez, chief information and engineering officer at UPS.

Arrival sets itself apart from other electric delivery vehicle companies in a few ways. One is its plan to establish “microfactories” that take up 10,000 square meters and make around 10,000 vehicles a year for nearby customers. The use of microfactories instead of a large plant will significantly cut the costs of manufacturing. Another unique aspect of Arrival is its modular approach to production in which the vehicle’s weight, type, size, and shape can be customized according to the purchaser’s preference.

The environmental aspect of using electric vehicles over gas or diesel vehicles is a major component that will contribute to Arrival’s current and expected success. A report by the World Economic Forum revealed that deliveries will increase carbon emissions by 30% by 2030 unless there is effective intervention. One of the intervention options that will have the greatest impact on reducing CO2 emissions is switching to battery electric vehicles. According to the report, battery electric vehicles can reduce CO2 emissions by 16%. UPS currently has about 123,000 delivery vehicles in its fleet. If all goes well with the electrical vehicles it purchased then the vehicles currently in UPS’s use might be phased out which is the sort of intervention our environment needs.

“As mega-trends like population growth, urban migration, and e-commerce continue to accelerate, we recognize the need to work with partners around the world to solve both road congestion and pollution challenges for our customers and the communities we serve. Electric vehicles form a cornerstone to our sustainable urban delivery strategies. Taking an active investment role in Arrival enables UPS to collaborate on the design and production of the world’s most advanced electric delivery vehicles.”

Juan Perez of UPS

There is no doubt that unmanned aerial vehicles (UAVs), i.e. drone aircraft or drones, are an increasingly popular and strangely normal aspect of our everyday lives in 2020. And how could they not be? When there is a product that can appeal to pretty much any and every one – from farmers wanting to efficiently monitor their crops, to those of us just looking to take the perfect selfie – it’s going to be explosively popular. Even military forces around the world are getting in on the action. The innovative uses for drones seem borderline infinite, and there is no questioning their utility even when applied in ways that may come as a surprise. 

One use that many people are likely familiar with is that of commercial delivery. A number of companies within the United States have been eyeing the drone delivery market for some time now, particularly UPS and Alphabet’s Wing. Typically, the Federal Aviation Administration’s (FAA) rules governing drone flight in the United States require, among other things, that the drone remain in the operator’s line of sight for the entirety of the flight. This generally goes for both hobbyists and commercial operators. However, the FAA, in an effort to encourage and not stifle innovation, created the Unmanned Aircraft Systems (UAS) Integration Pilot Program (IPP).

To promote continued technological innovation and to ensure the global leadership of the United States in this emerging industry, the regulatory framework for UAS operations must be sufficiently flexible to keep pace with the advancement of UAS technology, while balancing the vital Federal roles in protecting privacy and civil liberties; mitigating risks to national security and homeland security; and protecting the safety of the American public, critical infrastructure, and the Nation’s airspace.

Presidential Memorandum for the Secretary of Transportation, Unmanned Aircraft Systems Integration Pilot Program

Additionally, the FAA has in place one particular process that allows operators to obtain exemption from specific rules governing drone flight: Part 135 certification process. All IPP participants go through the Part 135 certification process, including those companies looking to dive into the package delivery market. Currently, “Part 135 certification is the only path for small drones to carry the property of another for compensation beyond visual line of sight.” Both UPS and Alphabet’s Wing are IPP participants and have been granted Part 135 certificates, although not for the same type of operations – you can check out the four types operations for which operators can be granted a Part 135 certificate here.

It was announced on October 1, 2019 that UPS subsidiary UPS Flight Forward was awarded a Part 135 Standard certification, the first ever. Flight Forward, in partnership with drone manufacturer Matternet, started in and has continued to hone its operation model for drone delivery within the healthcare industry, with WakeMed Hospital in Raleigh, NC as the starting point. It has been reported that one goal of the program is to test delivery of healthcare necessities in area where roads may not be a viable option – think natural disasters. 

“This is history in the making, and we aren’t done yet. . . . We will soon announce other steps to build out our infrastructure, expand services for healthcare customers and put drones to new uses in the future.”

David Abney, UPS chief executive officer

Recently, the Flight Forward drone delivery service program has expanded its services to the University of California San Diego (USCD) Health system where the company’s drones will be used to transport things like blood samples and documents short distances between centers.

Interestingly enough, a proposed rule from the FAA was just recently (February 3, 2020) published in the Federal Register. The proposal, titled Type Certification of Unmanned Aircraft Systems, essentially wants to open the door to more companies who want to get involved in small-package delivery via drone fleets. This type of regulatory framework for delivery drones should work much in the same way that the type certification process operates for other aircraft, a model-by-model certification process that allows approved models to then operate throughout the US. If you feel particularly strongly about this, the FAA is accepting public comment on the proposed rule until March 4, 2020.

This seems to be just the tip of the iceberg of what needs to be and may soon be done to promote widespread use of and explosive growth within the commercial drone delivery world, but it is definitely a big step toward getting that goal off the ground – no pun intended. If nothing else, this change is a good example of how the law is attempting to keep up with innovations in technology and increases in demand for such services, and how policymakers are remaining flexible in their approaches.

The past few weeks have shown the intricate connection that access to transportation has with human health and the global economy. The outbreak of Coronavirus in Wuhan China, leading to mass international transportation restrictions, is a case study in the effects that transportation has on our daily lives and on the global economy.

Coronavirus Timeline

  • China first alerted the World Health Organization or several cases of pneumonia in Wuhan at the end of December 2019.
  • The first death in China, which occurred on January 9th,  wasn’t announced until January 11th.
  • The first WHO reported case outside of China, in Thailand, occurred on January 13th.
  • The United States announced it would start screening passengers arriving in airports from Wuhan, after a second death was announced on January 17th. Many European countries followed suit on January 22nd
  • On January 23rd, China quarantined Wuhan, suspending air and rail departures
  • On January 24th, China shut down 13 more cities, affecting 41 million people. Several entertainment venues, including Shanghai Disneyland and sections of the Great Wall, were also shut down.
  • On January 25th, five more cities were placed under travel restrictions, increasing the total number of persons affected to 56 million. Hong Kong canceled Lunar New Year celebrations and restricted travel to mainland China.

In less than 4 weeks, China went from reporting pneumonia-like symptoms to restricting the travel of over 50 million people. Wuhan, a city of more than 11 million people, was shut down right before the beginning of the Chinese New Year, one of the busiest travel weeks in the world. The travel restrictions are meant to prevent the spread of the Coronavirus, a necessary tactic with more than 100 people dead, and more than 6,000 cases of infection.

The U.S., Europe, and Asia began enforcing new regulations to block visitors from China. At the same time, major airlines suspended flights to the country for the foreseeable future. The Chinese authorities shut down commercial flights and prohibited people from leaving Wuhan using buses, subways, or ferries. The restrictions also included blocking expressways. The reason for the shutdown: evidence suggests that the virus passes from person to person through close contact. One unintended consequence of the travel restrictions: stock market crashes.

The primary difficulty in shutting down Wuhan is that it is a central hub for industry and commerce in Central China. It is home to the region’s biggest airport and a deep-water port. Tens of thousands of travelers enter and depart Wuhan every day.

Access to hospitals is one of the most significant concerns about the outbreak. The power of the Chinese government to shut down transportation is perhaps most starkly seen in their goal to build a hospital in Wuhan in less than two weeks.

Restricting travel on the world’s second-largest economy on the eve of the busiest travel week in China caused the single largest day drop in U.S. stocks since September 2019. Millions of Chinese residents would typically make hundreds of millions of trips during the Chinese New Year to visit loved ones, celebrate the beginning of a new year, and enjoy time away from work. Last year, consumers in China spent $148 billion on retail and catering and generated $74 billion in domestic tourism on 415 million trips. China’s movie sector also brought in 10% of its annual revenue during the Chinese New Year. In response to the travel restrictions on January 25th, stocks like Disney, AMEX, and American Airlines all plummeted when markets opened Monday the 27th.

Limits on mobility and transportation affect things much more important than the U.S. stock market. The Chinese New Year is the most important celebration in the Chinese Calendar. It is a time to celebrate family, ancestors, and togetherness. Those affected by travel restrictions decided to forgo trips to see loved ones and visits to important cultural sites, as well as museums, galleries, and other sources of entertainment. The need to protect human health and prevent the spread of Coronavirus is paramount. But other than the Coronavirus affecting people’s physical health, the restrictions on mobility will prevent spiritual and familial connections that underpin Chinese society.

The impact transportation and mobility have on economics, and human health is clearly demonstrated in the Chinese travel restrictions. With 50 million citizens under “city-arrest” and the rest of the country reticent to travel, shockwaves have been felt across the globe. I hope the Coronavirus crisis can be solved quickly and efficiently, and that the Chinese can return to a sense of normalcy and free mobility.