Government Operations Committee on May 12th, 2016

[The Chair, Conservative, Tom Lukiwski]

Welcome, colleagues, to meeting number 13 of the Standing Committee on Government Operations and Estimates.

Today we will have a number of witnesses before us. In the first hour, from 4:30 to 5:30, we'll have with us representatives from Canada Post.

Before we get going, I should say for the benefit of the committee that we do have a fair amount of committee business to get through; however, most of it can wait until next Tuesday. I'm recommending that I deal with one item today. The rest I will defer until next Tuesday.

The reason I say this is that the witnesses in our second group, who are coming in at 4:30, will probably each have 10-minute opening statements. If we cut off 15 minutes of time for committee business, that would allow committee members only 15 minutes to ask questions. When they arrive, I'll discuss that with them, and hopefully they can make their opening statements a little more economical. However, we'll deal with that at the time.

Now I'd like to welcome the representatives from the Canada Post Corporation who are with us.

Welcome, Mr. Chopra, to you and your officials. Could you please identify yourself and the officials who are with you today? Then we'll begin right away with your opening statement.

[Deepak Chopra, President and Chief Executive Officer, Canada Post Corporation]

My name is Deepak Chopra. I'm the CEO of Canada Post.

My colleague Jacques Côté is group president and chief commercial officer. My colleague Susan Margles is vice-president of government relations and policy.

[The Chair, Conservative, Tom Lukiwski]

I believe you have a 10-minute opening statement, sir.

[Deepak Chopra]

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.

[The Chair, Conservative, Tom Lukiwski]

Thank you, Mr. Chopra.

We'll go now into our first round of questioning, which will be seven minutes, and our first intervenor will be Monsieur Ayoub.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you, Mr. Chair.

I want to thank the three witnesses for joining us today.

This is a very important issue for me. I was supposed to be attending an event in my riding this evening, but I decided not to go because I felt that the issue was too important.

Canada Post clearly provides an important service. I'm happy to see that you have a five-point action plan. When did you start working on that plan? I believe it was presented around 2013.

[Deepak Chopra]

Our five-point plan, as you know, has been suspended. We're focused on the future. It's important for us to make sure that as we go through this independent review process the independent panel understands we are operating in a highly competitive environment.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Mr. Chopra, my question was when did you start looking at the plan for November 2013?

[Deepak Chopra]

The focus for Canada Post today is to look at solutions for the future. Having suspended that plan all our energies are now—

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Mr. Chopra, my question is very simple. When did you start looking at that plan?

[Deepak Chopra]

This planning is a multi-year and multi-generational process. To plan the networks of the future, the long-term solutions, takes many years. That's a process that's carried on—

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Mr. Chair, I'm going to interrupt another time.

[The Chair, Conservative, Tom Lukiwski]

Go ahead.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

My question is simple. I ask you very gently, very humbly, to answer the question. When did they start planning to release that plan in November 2013?

[The Chair, Conservative, Tom Lukiwski]

Mr. Chopra, I will side with Mr. Ayoub on this one; the question should be a quite simple one to answer. When did you start developing your five-point plan?

[Deepak Chopra]

Our five-point plan goes back prior to my arrival at Canada Post because most of the transformation that was under way started back in 2008-09. Portions of that are part of our modernization plan, our new equipment, our new vehicles.

So when you are running—

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

When did you arrive at Canada Post?

[Deepak Chopra]

I arrived in February 2011.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

Thank you.

The plan that was developed is quite ambitious. Who approved it? Who authorized the implementation of the plan? Who authorized the implementation of its five points?

[Deepak Chopra]

The normal process for Canada Post to get its plans prepared and approved requires management to prepare its plans, and then review it with the board of directors. The board of directors then reviews the plan as part of its annual exercise. Those plans then get submitted to the Treasury Board as part of the annual corporate plan approval process. And that is an annual, routine process that carries on for every plan.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

So we can say that the previous government approved the plan's rollout in November 2013.

[Deepak Chopra]

Canada Post regularly prepares its corporate plans and follows the established Treasury Board and the FA process. Like every other crown that's what we follow: the regular process, due process, our annual corporate plan.

[Ramez Ayoub, Liberal, Thérèse-De Blainville, QC]

I remember very well when that new decision was implemented to stop residential mail delivery. I was mayor of the town of Lorraine and witnessed that implementation. We had to deal with that situation in less than 24 hours, once the announcement was made to our constituents that the service had been abolished.

I'm looking at the plan. It is ambitious, it was prepared a long time ago, and it says that you have held discussions with municipalities and constituents. But I can guarantee today that this was not the case at the time. The messages had already been passed. I have said this already. The town of Lorraine was the unwitting guinea pig. We went through the implementation. We are now seeing its repercussions.

I am now an MP, and that may have something to do with it. There is an issue with ice on community mailboxes. The problems related to seniors and individuals with reduced mobility have not been resolved, and there is theft and vandalism. The issues are fairly critical, but the response has been lacking or minimal. Of course, your employees are acting in good faith, but the management has failed. That is why our party is reviewing these issues. We are once again dealing with a problem that has been imposed on us.

What short-term solutions do you propose to resolve these issues until a long-term solution is found? What are your short-term solutions to chronic ice problems and issues with people losing access to their mail? I would like to get an answer, as it has not been easy to get answers from the support group, despite its good will.

[Deepak Chopra]

I'll ask my colleague to address the operational issues.

[Jacques Côté, Group President, Physical Delivery Network, Canada Post Corporation]

There are a number of problems on a daily basis. Thefts have been taking place before and after delivery. Sometimes vehicles are targeted and sometimes community mailboxes are. Unfortunately, crime is an issue Canada Post faces daily in its post office warehouses. We have a security group that works with local and national police forces to prevent theft, but thieves are not only targeting community mailboxes.

When it comes to keys, Canada Post has been using community mailboxes with great success for 30 years. There have always been problems with locks freezing. All our community mailboxes display the client service telephone number. When a problem occurs, we are happy to send someone to repair the lock as quickly as possible. When an ice storm occurs, for example, it can take a whole day and regions can be greatly affected, but, generally speaking, the system has proven its effectiveness over the past 30 years.