Transport Committee on June 8th, 2010

[The Chair, Conservative, Merv Tweed]

Mr. Richards.

[Blake Richards, Conservative, Wild Rose, AB]

Thank you for being here today and for being so open to answering our questions.

According to my understanding of the timeline, I believe on April 30, 2008, Air Canada notified Canada Post that it was going to be amending its service agreement for air transportation of parcels and mail. The carrier then gave Canada Post 16 days to agree to a revised contract that would have immediately raised the corporation's operating cost by about $15 million. Canada Post said they would not do that. Then the clock started ticking on a 120-day window for Canada Post to make new air transport arrangements. Is that fairly accurate?

[William Henderson]

Yes, it is.

[Blake Richards, Conservative, Wild Rose, AB]

So in the interim, Canada Post put out the request and called for information. You said, I believe, that four other carriers replied. They decided on Purolator as the best option. That's accurate as well?

[William Henderson]

Yes.

[Blake Richards, Conservative, Wild Rose, AB]

The auditors also found that the contracting process used in 2008 was deemed completely appropriate and met the corporation's operational requirements. Is that your understanding as well?

[William Henderson]

Yes.

[Blake Richards, Conservative, Wild Rose, AB]

In your opinion, what would have been the effect on parcel and letter delivery service if the 120 days had passed and Canada Post had been unable to secure an efficient new transportation partner, or had only secured one that still had some significant bugs to iron out? What would have been some of the effects on mail service for Canadians?

[William Henderson]

Every single night, just under 200,000 pounds of mail is delivered on these DC-10 aircraft. Without being able to put up the airlift, had Purolator or any other carrier not responded, that mail would have suffered service delays. After a certain time, when you're backlogging 100 tonnes of mail a day, it becomes a monumental task to clear that backlog. The mail keeps our country moving. So it was important that we didn't incur one service failure, and we did not. From day one, we were never late on that mail.

[Blake Richards, Conservative, Wild Rose, AB]

If that had happened, there would have been some pretty significant inconveniences and problems for the mail service and for Canadians.

[William Henderson]

Absolutely.

[Blake Richards, Conservative, Wild Rose, AB]

Would you have any idea of the costs that Canada Post would have incurred had that time passed and it hadn't been able to find a new transport supplier?

[William Henderson]

I don't know everything they would have incurred. I could tell you what it would cost to move aircraft. Try to sublease that, and you're going to pay premiums. On short term, Purolator will at Christmastime pay premiums 20%, 30% north of their normal rates to move airlift over the holiday period. The same thing would have most likely occurred at that time. But that's just on the aircraft. I can't speak about the rest of the operation.

[Blake Richards, Conservative, Wild Rose, AB]

Sounds as if there would have been some pretty significant increases in costs.

According to Canada Post, the transfer of service from Air Canada to Purolator was seamless. I'm wondering if you can share with us some of the major commonalities in your two organizations that allowed that to happen, allowed you to build a new transportation network within a pretty tight time period.

[William Henderson]

The transportation we have at work has already been in place. It was simply a matter of the introduction of the two DC-10s. The part of the infrastructure that made this feasible for Purolator was having the airport space, what we refer to as “aprons”, which we obviously lease at federal airports. Those are the massive tracks of concrete where aircraft are parked and where we have ground handling equipment to load and offload these aircraft.

That entire infrastructure was in place, the trained people were in place, and Kelowna had the hangars, one in Kelowna and another in Hamilton, to service these aircraft. These aircraft operate from Hamilton all the way to Vancouver.

So we had the infrastructure in place. It was simply a matter of acquiring the aircraft. In the secondary market for cargo aircraft, there are a lot of them parked out in the desert.

[Blake Richards, Conservative, Wild Rose, AB]

Are you aware of or do you know of performance measures that are in place to compare you with the previous supplier, Air Canada, which you can maybe share with us to help us understand the process and the success of the handover?

[William Henderson]

Certainly. In terms of percent on time, Purolator has to achieve a 97% on-time rate. It's actually recorded daily. We provide those services to the control offices between Purolator, Canada Post, and the rest of the companies we carry air freight for, each and every day. On a quarterly basis, Purolator actually has to meet with Canada Post, and they go through and audit the performance metrics and the costs that have been incurred, including the price of the fuel. That's all reconciled on a quarterly basis.

[The Chair, Conservative, Merv Tweed]

Thank you very much, Mr. Richards.

Mr. Volpe.

[Joe Volpe, Liberal, Eglinton—Lawrence, ON]

Thank you very much, Mr. Chair. I'd like to go back to Mr. Henderson. You know, if I were polite, I'd let him carry on about the way Purolator operates, but I want to return to the main theme.

Please understand, Mr. Henderson, that I'm trying to be as professional as I can be. I have nothing against you; it's just that there's a frustration that six members of Canada Post sit on a board. That means they have the majority. The Canada Post president told this committee that we have to ask you the questions, and one of the first leads you gave us was: don't ask us, ask them.

[William Henderson]

Sorry, sir, I didn't say ask Canada Post. I made reference to the commercial terms of our contract, which are as sensitive to us as they are to DHL, FedEx, or UPS.

[Joe Volpe, Liberal, Eglinton—Lawrence, ON]

Right.

These are all companies with whom you and Canada Post actually have an ongoing relationship. You've used UPS, you've used FedEx, you've used Morningstar, you've used Cargojet. So that's four. There's an interchangeability of service amongst all of you. To then characterize your abilities as the only national ones, whereas all the others are foreign, is, quite frankly, I think, trying to appeal to a patriotic and nationalist sense of the service you might be providing.

[William Henderson]

Actually, sir, if I could, that's just Canadian pride. I'm pretty proud of being a Canadian.

[Joe Volpe, Liberal, Eglinton—Lawrence, ON]

You're probably not as proud as I am, but that's not what's at stake here, quite frankly.

What's at stake here is the issue of transparency and accountability and sole sourcing of a contract. The contract that you got from Air Canada was a cost-plus contract, which meant—if Mr. Richards' concerns about costs are significant—there was no limit to the cost....

[Technical difficulty--Editor]...was going to pay you, notwithstanding their reservations about Air Canada.

My question about timelines is this. DC-10s went out of—

[The Chair, Conservative, Merv Tweed]

Mr. Watson, on a point of order.

[Jeff Watson, Conservative, Essex, ON]

I think it was better with his microphone off actually.

Mr. Chair, that was a rude comment about patriotism directed at the witnesses here today. I don't think they deserve that kind of attitude, and I think Mr. Volpe should apologize and withdraw the remark.