Government Operations Committee on Sept. 26th, 2016

[The Chair, Conservative, Tom Lukiwski]

We'll come to order, please.

Welcome, everyone, to the 29th meeting of the Standing Committee on Government Operations and Estimates as we conduct our study on the future of Canada Post. We were in Montreal earlier today. We are very glad to see our stakeholders and witnesses with us this afternoon.

The process we have been following, gentlemen, is that we're asking all of our witnesses to come forward with a brief opening statement of five minutes or less to allow as much time for questions from our committee members as possible. If you could adhere to that five-minute timeline, your chair would appreciate it very much.

On my list I have Mr. Réal Couture as our first speaker.

Sir, the floor is yours.

[Réal Couture, President, Chambre de commerce et d'industrie Thérèse-De-Blainville]

Thank you, Mr. Chair.

Thank you very much for inviting us to appear before the committee today.

My name is Réal Couture and I am the President of the Chambre de commerce et d'industrie de Thérèse-De-Blainville.

We have a number of organizations in our territory, including the Chambre de commerce de Bois-des-Filion / Lorraine. Unfortunately, Guy Barbe is away, but, in his place, we have Michel Limoges. Christian Fréchette, from the Association des gens d'affaires de Blainville, is with us as well.

Our three organizations decided to conduct a survey. We have about 800 members and we sent out a survey to which 10% of the members replied. That means we received replies from 80 members, which we find very good as a response rate. We asked them four questions.

First, they had to indicate their level of satisfaction with Canada Post services before the changes. Second, they had to indicate their level of satisfaction after the changes. Third, they had an open question about how they saw Canada Post services and fourth, people could make any comment they liked about Canada Post.

After about a week, we received all the information we required. Mr. Fréchette will give you the conclusions we drew from the four questions.

I will now turn it over to Mr. Fréchette.

[Christian Fréchette, President, Association des gens d’affaires de Blainville]

Thank you very much, Mr. Couture.

If you would like to have all the details of this online survey, we can send them to you afterwards.

As Mr. Couture mentioned, our intention was first to talk to business people. Mr. Limoges will talk to you later about the residential aspect.

In terms of a business plan, people have suffered little impact; they brought up four major reasons for that.

First, there are already other parcel-delivery services. Canada Post has a presence in that market and there is competition. People use Canada Post, but they also use other suppliers. Those who do their business online are generally satisfied with the services, but I am sure that Mr. Alacchi will tell you more about that. The lack of flexibility is a shortcoming. There is also the matter of the complexity companies encounter in doing business with Canada Post.

Second, most of the businesses in our region already have a mailbox. The changes were not really changes for them because they were already in the habit of operating that way.

Third, a number of businesses in the region use ad-mail and therefore do direct mailing and marketing. For them, taking their mailings to various Canada Post offices was not an issue. However, they had to deal with some changes, but, for them, the changes did not amount to a lot.

Fourth, we are in the Web 3.0 era and we will soon see Web 4.0. More and more companies use email instead of sending packages and they have moved their information online. In particular, sending invoices by email is done more and more.

Mr. Limoges will take over now.

[Michel Limoges, Past-Co-President, Chambre de Commerce de Bois-des-Filion / Lorraine]

We must point out that the satisfaction rate dropped 20% after the changes. For our respondents, the rate was around 85% and it dropped to 65% after the changes. They were particularly referring to home delivery, not business delivery. So that is a very significant drop.

[Christian Fréchette]

If you want the notes that we have just shared with you, we can distribute them. The same goes if you need any more details about what we did. As Mr. Couture mentioned, a 10% participation rate is still quite representative of the region.

[The Chair, Conservative, Tom Lukiwski]

Gentlemen, what we have been encouraging all of our witnesses to date is to provide any additional information you wish to the attention of this committee. We welcome your submissions sent directly to our clerk. Also, if our committee has more questions for you after your appearance here is concluded, we would pose written questions to all of you for answers.

Mr. Alacchi.

[Andréa Alacchi, President, L'Encrier]

What I'm going to be speaking about is very different from these gentlemen.

[The Chair, Conservative, Tom Lukiwski]

Please go ahead.

[Andréa Alacchi]

I'm going to be presenting from the point of view of an e-commerce company.

At L'Encrier, we manufacture and sell ink and toner consumable products, and we do so 100% online. Some 76% of everything we sell is exported: 70% to the United States and 6% globally. We are a true e-commerce company. The future of retail, as you know, is becoming more and more e-commerce. It's fast-growing, and e-commerce will play an important role in the Canadian economy.

Canada Post is the only carrier that covers every household in Canada. It's the only carrier that will take our parcels throughout the country. Canada Post is therefore a vital infrastructure that drives the e-commerce industry.

I don't know if this committee is aware of the international agreement called the Universal Postal Union. I'm not an expert on the agreement, but I know that when a parcel arrives in a country, the post office of that country must deliver it to any address within their country for the same fixed price, and the price is determined by the agreement, which for a rich country like Canada turns out to be quite low.

Our competitors abroad will bring in packages, and regardless of where they appear in Canada, the post office has to deliver to the final destination, whether it's Toronto or Nunavut, for the same low fixed price, whereas Canadians who sell online must pay very different prices depending on where it's going in the country.

Price fluctuation is very bad for e-commerce, because we can't predict what it's going to cost. I don't know if anyone here shops online, but no one wants to pay for shipping. They want to see free shipping. That's the new thing that's happening. So we are forced to put the cost of the shipping within our parcels.

I would like to also discuss the disparities with our biggest trading partner, the United States. The Americans have made changes to their post office, and they continue doing it to enable e-commerce. An example would be that it takes two to three days on average to deliver a package between New York and California, but it takes four to six days with a comparable product in Canada between Montreal and British Columbia.

The price fluctuation in the U.S. is a lot less. They have fewer zones. There's less fluctuation in prices between the zones, and they've introduced flat-rate boxes. Their motto is “if it fits, it ships”, at one low price regardless of where in the country: Hawaii, Alaska, Guam, California, it doesn't matter. They realize that price fluctuation is not good, and they've standardized for their country.

Typically, an American can ship a package to Europe for about half the price a Canadian can. When a Canadian ships a package to the United States using Canada Post, it costs about two to three times our domestic rates. I know they're trying to do things to improve it, but still it's at least 200% more.

Americans who want to ship to Canadians are paying about 30% to 40% above their domestic rates to do so. Again, that's another disadvantage.

How can we compete? Why am I still in business? Why am I here? It's because I'm doing everything that all the other e-commerce companies are doing. Thank God we live near the border, because we're putting all our packages onto a truck and we're going across that border every day and putting everything for delivery internationally and within the United States into the United States Postal Service. So 76% of everything we do in L'Encrier ends up in the hands of the United States Postal Service.

That only solves half the problem. The other half of the problem is Canadians buying. If you live in a remote region, it is cheaper for you to buy from an American who is going to offer free shipping into Canada, or a Chinese company directly, than it is to buy from your own Canadian companies, because they don't face this large price fluctuation that is created by this Universal Postal Union.

We have a paradox, which is my last point because I know I'm taking a bit of extra time. The paradox is that we want Canada Post to be efficient, effective, and provide all the services we need for e-commerce, letter mail, and everything else. On the other hand, we want it to be profitable.

How can a company be profitable when you have all these parcels coming in internationally that have to be delivered? By the way, the number is going up. The statistic I heard is that as many as 50% of Canadians are buying products from abroad instead of from other Canadians.

If e-commerce grows and that trend continues, we're going to have more and more packages that have to be delivered across the country cheaply as opposed to packages from our own domestic market. It's obvious that in order to cope with this problem, Canada Post has to raise prices elsewhere, maybe international shipments, maybe across our own country, to compensate because they have to balance the books at the end of the year.

The point is, do we consider Canada Post a service or do we consider Canada Post part of our infrastructure? If we consider Canada Post to be part of the Canadian e-commerce infrastructure, then, like any other infrastructure, like paying for a bridge or paying for a tunnel, we need to invest in that kind of service. If it could be done by the private sector, it would be, and it's not. Only Canada Post goes across the whole country.

The conclusion is, the United States do subsidize their post office because they provide all these great services, but they do it at a deficit, and it's an important deficit. I don't know the exact numbers, but I'm sure it's in the billions of dollars. We don't want to create deficits in Canada for no reason, but we do need to do something to normalize the e-commerce platform before we're inundated by foreign imports. At the end, I believe we too must invest in our e-commerce infrastructure.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We'll start now with our regular questioning. We will start with a seven-minute round of questions, both for the questions and the answers, and we'll start with Monsieur Ayoub.

You have seven minutes.

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

Thank you, Mr. Chair.

My thanks to the witnesses for coming to see us today for this important exercise of mutual information sharing.

My question is quite a basic one and you have actually alluded to it briefly. In your opinion, is Canada Post two businesses?

You are representing the commercial side today but, at the same time, the survey deals with the residential side. The commercial side never does anything that does not affect the residential sector, unless you are telling me that you do business only with other companies. Residential customers always buy products from other companies.

I would like to hear your opinion about whether there are two businesses inside Canada Post. When we go to major urban centres, we hear about quite significant differences. We have come from Montreal where clearly the reality is quite different from the North Shore and from other suburbs. I am talking about companies and about being close to the border, but also about new residential developments where community mailboxes are installed from the outset.

I would like to have your perspective. I have raised a number of points. I don’t know who wants to start an answer.

[Réal Couture]

I will start.

From the questionnaires, we saw that companies, individuals, parcels and the related business, the rates, all fit together well. Yes, sometimes it takes a little longer, but no one is saying that they hate Canada Post and no longer want to have anything to do with it. No one is saying that.

When individuals think about what it means for them, it becomes a little different. Yes, there are two businesses in the minds of ordinary mortals, but for business people, it is one company. When a businessman goes home and hears that his mother-in-law no longer has this or that and has lost such and such a service, it has an effect on him. But as a businessman, he sees Canada Post as two distinct companies.

I am an accountant by training. This is as if someone asked me whether a tax accountant is different from a regular accountant. The answer is yes. It is completely different.

[Christian Fréchette]

I echo the comments of my colleague, Mr. Couture. They are clearly two different companies. The reason is not complicated. I am not an accountant by training, I am a marketer. So you don't deal with a business and a consumer in the same way. I have no option but to tell you that there are two distinct companies.

As Mr. Couture mentioned, our survey showed us that, in general, people who use Canada Post services a little or a moderate amount are satisfied with them. However, the hesitation, the dissatisfaction, on the part of the customers—especially those with reduced mobility—is about the mailboxes. For most young people, it is not a problem. They are still healthy and they can move around. However, the population is aging and becoming less and less mobile. We are going to have to find a service that corresponds to their reality.

Canada Post also has a significant role to play in this. If it does not provide services for people with reduced mobility, smaller companies will fill that gap. It will then be up to Canada Post to decide whether it starts using subcontractors and letting those services into the market, or whether it chooses another solution.

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

Mr. Limoges, do you have anything to add?

[Michel Limoges]

I consider that it is a single company that provides two very different services, residential service and commercial service. In my opinion, the residential service has been largely covered. I agree with online businesspeople when I say that it is about the future. If Canada Post does not adapt, companies will have a hard time following, which will have disastrous consequences for the economy.

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

We have talked about the fact that one company can provide two different services. In order to maintain the universality of the service in, or almost in, its current form, would you accept the idea of Canada Post using its commercial revenue to subsidize the residential side?

We have heard all kinds of ideas about the matter, including reducing the frequency of mail delivery to every two or three days, even once per week. Are those possible solutions in your business plan?

[Christian Fréchette]

From a business point of view, it is not conceivable to have commercial service less than five days per week. The five weekdays must be maintained.

As for residential service, letter or parcel delivery once or twice a week does not seem to me to be an obstacle.

Business has to adapt. There is no choice; it has to react.

[Andréa Alacchi]

Online business is B to B, business to business. However, most of our sales are B to C, that is, business to consumer.

Delivery is residential, even with commercial products. Online business is linked to residential delivery in at least 80% of the cases. Delivery service twice or three times per week makes no sense. Amazon is looking to deliver its orders on the same day with drones. In a context like that, Canada Post cannot move to parcel delivery two or three times per week. Rather, we should be doing what they do in the United States, with Saturday delivery. People who shop online want to get the package directly at their homes. They don’t want to wait for mail service. These are two different worlds, but the service is the same. It really is a residential service.

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

Is that a general practice?

[The Chair, Conservative, Tom Lukiwski]

Mr. Ayoub, your time is up.

Mr. Gourde, you have the floor for seven minutes.

[Jacques Gourde, Conservative, Lévis—Lotbinière, QC]

Thank you, Mr. Chair. I also thank the witnesses for joining us.

I will continue along the same lines.

This morning, someone mentioned that, in some regions, post offices are open from 9:00 a.m. to 4:00 p.m. That does not reflect today's reality. When customers leave their offices around 5:30 p.m. or 6:00 p.m., post offices are closed. This morning, it was also mentioned that Amazon can deliver a package in one hour.

You seem to be saying that, from a business point of view, Canada Post should be providing a delivery service for business parcels on the same day, or the next day at the latest.

[Andréa Alacchi]

What I am saying is that a customer buying something online wants to receive it quickly. If Canada Post provides a delivery service in two or three days and another company provides it on the same day or the next day, Canada Post will not be making that delivery. Delivery time is a very important factor for online business. It's actually the most important.

[Jacques Gourde, Conservative, Lévis—Lotbinière, QC]

You do business in Canada and in other countries. Are there other countries where the delivery service is quicker and more competitive than Canada Post's?

[Andréa Alacchi]

As I mentioned previously, the service in the United States is a little quicker. I am not talking about express service, because we have that both in Canada and the United States. I am talking about a normal delivery service from New York to California in two or three days. In Canada, to deliver a parcel from Montreal to British Columbia, you need four to six days. Clearly, it would be good to improve delivery times a little.

A much quicker delivery service will be needed in the future. Amazon is becoming more and more popular because it has warehouses located all over the country. Most of the time, that means that shipments can be delivered the next day. Companies that sell a lot online, like Staples, deliver every day with their own fleet of trucks.

It is important for Canada Post to realize that customers need better service than the one presently offered. No one is asking for same-day delivery from Montreal to Vancouver without paying extra, because that would be a special service. However, if the delivery time can be improved, why not emulate the United States and do it in Canada?

[Jacques Gourde, Conservative, Lévis—Lotbinière, QC]

Mr. Couture, just now, you mentioned that, in your survey, business people stated that it was complicated to do business with Canada Post. Could you tell us a little more about that?