Yes, thank you, Mr. Chair.
It is a privilege to be representing Canada Post, an institution that has occupied an important role for the people and businesses of our country for 253 years. A postal system that began with a few horses has evolved with the times. It continues to reinvent itself to meet the ever-changing needs and expectations of Canadians, yet it aspires to remain financially self-sustaining.
As the digital era signals another period of great change, we look forward to working with you to keep Canada Post strong, and to keep central its promise to serve all Canadians.
Our appearing before you today is very timely. Last week, Minister Foote announced an independent review of Canada Post. The review will hear from Canadians about their needs and expectations of the postal system, and we welcome that.
Also last week, Canada Post tabled its 2015 annual report, and that is where I would like to start today.
In 2015, Canada Post generated $6.3 billion in revenues and posted a $63-million before-tax profit. While positive, this is essentially a break-even result. The profit is modest in comparison to the revenues, and it is worth noting that it is down $131 million from the year before. The profit itself can be attributed to solid growth in parcels and a strong showing for our direct marketing service. It is also due in part to a one-time pricing adjustment that we implemented in 2014.
However, these factors alone are not enough to compensate for the mounting challenges we are facing today. The evidence for that statement is clear and laid bare in the data.
I don't want to recite a laundry list of stats and data, but I would like to offer some telling highlights. In the digital age, as Canadians choose to communicate and conduct their financial transactions online, our core business has been rapidly eroding. Since peaking in 2006, domestic letter mail volumes have fallen by 32% or 1.6 billion pieces. That has meant $1.1 billion in lost revenue.
While letter mail volumes are declining, the number of addresses we serve has been going up, by an average of 169,000 delivery points per year over the last nine years. This means we are serving more and more addresses, yet collecting less revenue per address to cover a growing cost.
Another layer is added to the challenge by something unique to Canada. We have a vast geography and one of the lowest population densities in the world. Together with a declining density of mail per address, this makes for a high-cost structure in our postal system.
There is also a major pension issue we must contend with. As of the end of last year, the Canada Post Corporation Registered Pension Plan had a solvency deficit to be funded, estimated at $6.2 billion.
It is the combination of these multiple, intertwined factors that defines and complicates our challenges, but I can say with optimism that for 253 years Canada Post has overcome difficult challenges, and this time will be no different.
We look forward to the conversation to determine the best path forward. We want to serve Canadians in the way they expect to be served, and at a reasonable cost.
While the data from our latest annual report clarifies our challenges, it also provides a picture of how much residents and businesses continue to use us. Yes, transaction mail volumes are declining, but it is still an important service across the country. People and businesses mailed almost 3.7 billion pieces last year. Small businesses especially continue to rely on us. Canada Post has always had a special relationship with small businesses, as we provide an affordable way for them to send and receive important items such as payments and invoices.
We also understand the importance of connecting rural, remote, and northern communities. Though this has always been the case, it has become even more relevant today, with the arrival of e-commerce. We are able to provide the people and businesses in these communities with access to goods that they did not have before, and we are the only parcel carrier that delivers to some remote communities. For them, we are not just a service; we are a lifeline.
In fact, consumers all over Canada depend on us to receive their packages as we deliver almost two out of every three online orders. In turn, Canadian retailers depend on us to deliver those online orders every day.
In this context, Canada Post has become a significant partner to the nation's emerging digital economy. Businesses are also using our direct marketing services. Why? Because to them, direct mail is not junk mail. It is an affordable and effective way to directly reach their customers. This is especially true for local neighbourhoods and local neighbourhood businesses that rely on these marketing methods. So, yes, we remain important to Canadians as they use our services in both traditional and new ways, and this is why it's imperative to find the solutions that will keep Canada Post strong and financially viable.
As you know, we have been doing our best to try to find solutions. We have been updating our equipment, exploring options, and fixing our pension plan, and we had implemented a plan to address our revenue shortfall. However, given the desire of the new government to independently review the future direction of Canada Post, we ended elements of that plan. Specifically, we terminated the conversion of nationwide community mailbox delivery, and we also suspended the annual price increase for 2016.
Now we look forward to establishing a new relationship. We want to work co-operatively and transparently with the task force and then, with this parliamentary committee, find the path forward. We have a lot of postal experience and expertise to offer, with which we can help create solutions to the serious and complex challenges ahead.
I spoke a bit about e-commerce, but before I conclude I would like to underscore how much online shopping has changed the way people use the postal service.
What is in our plants, our depots, our trucks today might surprise you. Because Canadians are sending fewer letters yet buying more goods online; they are changing us from a mail company that delivered some parcels to a company that is also delivering some mail.
A whole new generation of Canadians are building a personal relationship with Canada Post, even if they don't know it, and we have become the backbone of the Canadian retail industry. These retailers are also struggling to survive in the digital economy, but we are helping them succeed. We are providing shipping and logistics support; we are opening our data so they can offer upfront delivery information on their checkout to online shoppers.
Since the beginning, parcel delivery has been one of our core strengths. Now the legacy network of the past needs to reflect the new realities of e-commerce and a digital economy that will continue to generate a lot more parcels. But I must caution that overcoming our challenges won't be as simple as switching mail for parcels. Our challenges are more complex than that.
Though both parcels and direct marketing represent opportunity for Canada Post, their growth won't be enough to offset the decline of our core letter-mail business, and pay for the pension plan, to allow us to invest in our network or customer service. Therefore, this growth will not be enough to ensure our long-term financial self-sustainability.
I have talked a lot about the challenges we face, but we are hardly alone in this predicament. Digital communication is threatening other industries, too. Media, television, film, books, these industries are experiencing all kinds of existential challenges borne out of the digital era. Around the world, postal services are each exploring their own much-needed survival solutions that fit the unique needs of their country, their residents, and their businesses.
In other words, I think everyone agrees that there is a problem and what the nature of the problem is. It's finding the solutions that will be the tricky part, but it's a journey we look forward to. We are glad to be here today and to be working toward the same goal. We all want a strong postal service, one that is sustainable, and one that serves the needs and expectations of all Canadians no matter where they live.
Thank you, Mr. Chairman.
