Thank you, Mr. Chair.
It's our pleasure to be here today after four months of intensive work.
I'd like to introduce to you the three other members. I'll start with Krystyna Hoeg, who is from Toronto. She is sometimes in St. Andrews, where she has a house as well. She says she's somewhat bipolar.
Also here is Marena McLaughlin. She's from New Brunswick. She was a public servant for many years. If you love football, you will know Jim Hopson. He is from Saskatchewan. These are the four larrons, as we say in French, all with different backgrounds and experiences.
Also here are some of the members of the department who helped us with the work. I want to salute them, because it's an effort of many people. You'll be on the road very soon with our work.
We had to assess the financial situation of Canada Post as of today—not an audit, but as of today—and its projections. We had to assess the needs of Canadians. We've opened a website. We've received lots of letters, and 22,000 Canadians gave us their opinions. We also did scientific polling. We polled more than 1,200 Canadians in order to understand their needs and also how they behave. Sometimes you'll see that there is some difference there. We also polled some businesses. We thought that businesses often have needs that are different from personal usage.
Once we assessed the financial situation and knew the needs, we needed to see if we could find different ideas to bridge the gaps. For that, we worked with firms that had international experience in order to bring to us the best practices in postal services around the world.
The financial assessment itself was done by EY, Ernst & Young. The polls were done by EKOS, Patterson Langlois, and Environics.
Let me start by saying that lettermail volumes for us have declined by 20% over the last five years and now make up less than half—c'est-à-dire, 42%—of Canada Post's mail volume. Over half the mail now delivered is admail, not only flyers but also addressed admail. On the other hand, e-commerce has driven parcel volume increases, so we may say that Canada Post went from being a mail-centric business to a parcel-centric business.
Unfortunately, lettermail volumes are expected to continue to drop. I say “unfortunately” because it is where the majority of the revenue comes from. The future of admail itself is questionable, given recipient preferences and greening initiatives. The parcels market is highly competitive and is becoming even more so. This means that when you're in the parcel business, you have to go by the market reality. You cannot say that you'd like an increase. You can ask for an increase, but of course you are not in a monopoly situation, as you are with the mail.
A major challenge faced by Canada Post is that its costs are largely fixed. These costs are difficult for the corporation to reduce in reaction to declining business volumes. Canada Post has a vast infrastructure of processing plants, depots, and post offices for processing the mail. Postal services are highly labour-intensive and, as such, labour costs represent about 70% of Canada Post's total costs.
Canada Post also has a pension plan with a current estimated solvency deficit of $8.1 billion. As a result of temporary relief granted by the government, Canada Post was able to defer payments of about $1.4 billion in 2015. Unless the interest rate environment improves substantially, which we all wish for, Canada Post will not have sufficient cash on hand to finance its operations when it resumes making its solvency payments.
Canada Post is also contending with other challenges stemming from the obligations outlined in the Canadian Postal Service Charter, which includes the requirement for mail to be delivered five days a week. This is at odds with the views of surveyed Canadians, where 73% of Canadians were open to the idea of alternate day delivery. The charter also maintains the 1994 rural moratorium under which Canada Post is prevented from closing or franchising almost 3,600 corporate post offices. As a result of population growth, some areas that were previously rural are now suburbs of major cities. I will give just a few examples: Halifax, Moncton, and Saskatoon. Those are now cities. We all know this.
When we did the fact-finding around the situation, we found out that even today Canada Post had a small profit of $99 million for the last year. For us, it's a small profit, not for our own portfolio, but for the portfolio of Canada Post. When you do the projections, you see that in 10 years from now it will be a loss of $700 million. We felt that we ought to be really looking, as was asked by the minister, at what could be done in order to help Canada Post remain as what Canadians have told us they like.
The majority of Canadians—and I mean over 80% to 90%—have told us this about Canada Post: I like their service, I'm attached to it, and I want it to remain a public service, but the reality is that I don't use it as much as I did. Ninety-one per cent of Canadians are connected to the Internet, and 69% of Canadians receive and pay their bills through the Internet, so of course those are reasons that we don't see as much mail usage as we used to.
What we have done, with Oliver Wyman, is look at different options that could bring either savings or new revenues. We've filtered the possibilities that we scanned from the different postal services in the world with three criteria. The first one was whether there is a fit with the abilities and the competencies that exist in Canada Post. The second was whether there was some space in the market. The third was whether they have the means. Would there be a need for a lot of investment, given that financially it is a very narrow possibility? Is it possible to do it without making a huge investment?
After having scanned more than 30—it was 38, actually—we eventually chose, given those criteria, to present to you for your consideration eight possibilities, most of which involve savings.
One that you will recognise will be the community mailbox conversion. Given what we have heard from Canadians, we thought it would be important.... In the stakeholders meeting we had, we were told that we should not consider installing community mailboxes in downtowns in cities, where there is a lot of traffic and little space. The majority of Canadians—I'd say more than 90%—told us that people with mobility problems should get their mail door to door. If you exclude all these, there are about 800,000 addresses where Canadians were prepared to go with community mailboxes after understanding the financial situation.
The other one was converting about 800 of the highest-volume corporate post offices. I was alluding to Halifax, Moncton, and Saskatoon. Those are examples. All across the country, rural realities in the nineties have become either suburbs or urban areas.
The other thing that is very interesting to point out to you to be considered is alternate-day delivery. Right now, you understand, parcels are being brought to the home by the same people who bring the mail. Canadians have told us that it's important for them to have the parcel the same day, but for mail, it can be once, twice, or at most three times a week. When it's a community mailbox, they told us that often they go only once a week to pick up their mail, because of the reduction of volume.
The other possibilities we are offering for your consideration is the streamlining of processing operations. Of course, as any business, we can always streamline. We think that savings could be estimated at $66 million.
You all know that Purolator belongs to Canada Post. There are already some synergies between Purolator and Canada Post. We think more can be done, and we say we could get a $60-million savings there.
We have a few ideas on more revenues, but they're not huge amounts. One is advertising to be sold on post offices and on the fleet. It's a large fleet, so it could be interesting. We said between $15 million and $20 million; we have put $19 million.
On the last mile, the obligation to Canada Post to reach out to all Canadians wherever they on the territory, that is a revenue of about $10 million if they were able to find other partners that could do the delivery. Those are the ones that you can identify as budgetary types of options that we're presenting to you.
Looking at the situation and how serious it was, and the fact that we're in the digital world and it will move on, with the oversampling we've done with the young people—and I'm looking at you, Mr. Drouin—we felt from what we discovered that not only is it going Internet, it's going mobile. The speed will be even faster as we go, so there is a necessity to understand that we're at a crossroads and that some measures can be taken to adjust the budget in the short term and mid-term. However, there will be a need to look into the long term, and the long term will require more types of structural options.
We've put forward some solutions for your consideration. From our point of view, they are around offering the post office services that could remain after a review of what is really rural to municipalities, to provincial governments, to other services in the federal government, and even to the private sector, such as banking. We know that banks have left some communities. Would they be interested in partnering with Canada Post to offer service in those areas?
The other solution that seemed to be interesting would be a change of governance. Is there some interest in changing the arrangement to make sure that for such a complex institution, we have all the stakeholders around the changes that will need to occur?
Also, we all know that the relationship with the unions is not an easy one. We were observers of that situation lately, and we felt that we should propose to you that you should consider the idea of bringing a third party to the table with the stakeholders—not an arbitrator or a mediator, but somebody to work on a restructuring of the operation to make sure it responds to what Canada Post has become.
There is also always the situation of adjusting the price of the stamp. That was used in 2014, when there was a step from 63¢ to 85¢. It cannot be said that this was the reason there was a decline, but it could be expected that the more you raise the price of the stamp, if you go over what the indexation is, you might be in a situation where you accelerate the stamp. Certainly there is no view in the analysis we've done with Ernst & Young that the price of stamps should be frozen. That, again, is for you to consider.
Finally, you've seen the headlines in the different media in the country. They've picked up on our idea of marijuana and they really misunderstood. They did not really read the full report. What we meant there is that marijuana is already medically distributed by Canada Post. If ever the government should see fit, in its wisdom, to do something about legalizing marijuana, maybe it should consider a part for Canada Post. We didn't talk about production or retailing; we talked about the distribution arm.
Did I forget something, my friends? No?
Thank you, Mr. Chair.
