Government Operations Committee on Sept. 27th, 2016

[The Chair, Conservative, Tom Lukiwski]

Colleagues, ladies and gentlemen, I think we'll commence, even though we're missing one of our panellists. In fairness to the panellists who are here, we'll get going.

Mr. Aaron Wudrick, from the Canadian Taxpayers Federation, is scheduled to appear as a panellist. However, I think he might be having some difficulty finding the location, as we did. We'll commence anyway, and, if shows up, then we'll certainly incorporate him into the testimony. Rather than delay the entire proceedings for the afternoon, I think we'll begin.

Mr. Sinclair, I'm not sure if you've been following the proceedings. Basically, it's a fairly straightforward procedure that we follow. We'll ask you to make an opening statement. We've been asking all panellists to keep their remarks to five minutes or less, if that's possible, and that will be followed by a series of questions from our committee members.

We are scheduled for an hour. If Mr. Wudrick does show up in the middle of that, we'll allow him to make his presentation and, as I say, weave him into the process of questions and answers.

With that being said, Mr. Sinclair, the floor is yours for your opening statement.

[Art Sinclair, Vice-President, Greater Kitchener Waterloo Chamber of Commerce]

Thank you very much, Chair and members of the committee.

As a representative of a local business community, my name is Art Sinclair and I'm vice-president of the Greater Kitchener Waterloo Chamber of Commerce. We'd like to thank you for including our municipality on your tour. I notice from your agenda that you're not staying here very long so you won't be able to sample our excellent hospitality and accommodations here in the greater Kitchener-Waterloo area. I would welcome you back at any point in the future because we have some excellent eating establishments and accommodations and some great businesses in this community.

I've reviewed the report submitted to the government in the past couple of weeks on Canada Post. I believe it's called “Canada Post in the digital age”. I want to make some general comments about some of the highlights and some of the issues that are of most interest to us as a business community. Then I believe you'll probably be asking questions more on the specific areas that you've outlined as being crucial to your discussion.

As I think I mentioned to a few people here in the past few minutes, all chambers of commerce and boards of trade across Canada were in Regina two weeks ago for our annual general meeting. One of our sessions was with Ms. Bertrand, who was the chair of the task force reviewing Canada Post. As you may be aware, she is also the president and CEO of the Quebec Federation of Chambers of Commerce. Ms. Bertrand made a brief presentation at the Canadian Chamber of Commerce annual general meeting, and she made one particularly memorable point that I think is very interesting. She said that Canada Post in the 21st century needs to operate with a 21st century business model. I think that point is inferred on a number of occasions throughout the report. I think overall that is the key consideration here: Canada Post operating in the 21st century needs a 21st century business model. Ms. Bertrand made this clear as well.

I'll go over some of the points that are of interest to us obviously as a business community. The report points out there are a number of businesses across Canada that are moving to the digital age. The key consideration here with digital technology is that in terms of direct marketing mail, which a number of businesses used to use, they are now using Internet and other forms of technology to more directly target their customers. Of course, a key challenge for Canada Post moving forward is that competition with digital technology.

Ms. Bertrand also noted to the media recently that after the review of Canada Post, their committee's observation was that the transition for Canada Post moving from mail to parcels has been a mess. She said that if most Canadians knew how fast that was.... They don't know. I think a lot of people would be surprised at how fast Canada Post is in transition. That's a key consideration moving forward.

One other issue goes back to the whole issue of a 21st century business model for a 21st century organization. In discussing evolving technologies, I think the term used in here was “disruptive technologies”. Some of us in the business community find that term disruptive technology to be ironic, particularly here where we have a number of IT firm start-ups that develop new technologies, spend hundreds of thousands, if not millions, of dollars developing new technologies; and they come on the market and they're called disruptive. That can be discouraging. In this whole issue of the technologies that cut into Canada Post's business, the point was made on a number of occasions in the report that what Canada Post is doing is delivering less mail to more addresses.

From a business perspective, we study this quite frequently. It goes back to the whole notion of productivity. This isn't just a challenge for Canada Post, this is a challenge for all businesses across Canada. How do we operate more efficiently? I think the task force has done a good job of identifying that as being a major challenge moving forward. Since Canada Post is delivering less mail to more addresses, how does Canada Post deal with that in the future?

To follow up on that, of particular interest to us were pages 43 and 57.

On page 43, Ernst & Young conclude that, “...Canada Post is facing an uncertain financial future. The current model is no longer sustainable over the medium and long terms with projected annual losses of over $700 million by 2026.” It also noted that costs are increasing as its delivery network expands to cover 170,000 new addresses every year... Direct marketing has started to decline as businesses are using digital channels to reach their clients. Parcel volumes are increasing but revenues will not cover the corporation's rising costs in other areas.

Furthermore, on page 57 of the report, it is noted that:

The current business model of the Corporation does not generate sufficient income and cash to finance the realignment needed to continue its journey from a letter-centric to a parcel-centric business, let alone remain a self-sustaining business post realignment.

I think that is key from a high-level perspective without going into details. It's a challenge providing a model that is self-sustaining at the same time as serving all the stakeholder groups.

My final point is with the negotiations over the past few months between CUPW and Canada Post.

I think we've all seen a lot of media reports about what the impact was going to be of a possible work stoppage on not only the Canadian business community but just Canadians in general. I think there was a lot of attention paid to the matter of what percentage, proportion, or what sector of the national business sector would be most impacted by a Canada Post labour disruption.

[The Chair, Conservative, Tom Lukiwski]

Wrap it up quickly, if you could, sir.

[Art Sinclair]

I have one final point.

I believe you probably heard from the Canadian Federation of Independent Business that said 98% of their members still use Canada Post. So my recommendation would be for the committee, as you move forward looking at the impact of Canada Post and their new operations and realignments on the business sector, that you have to look at the impact on small businesses.

Thank you very much.

[The Chair, Conservative, Tom Lukiwski]

Thank you, sir.

We'll go into our seven-minute round of questions.

We'll start with Ms. Ratansi.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you for being here, and thank you for reiterating what the task force said. The task force was before us, and we did meet with them and discuss their findings with them. Basically, this is a discussion paper from the task force.

Our mandate is to listen to all segments of the population. Unfortunately, the management of Canada Post was arrogant enough not to consult, and that is why we are in the situation we are today where we have to go around the country and do the job that the Canada Post Corporation should have done.

You talked about what the task force has said, but as the Chamber of Commerce, could you tell me what your membership is saying to you about whether they use Canada Post, how often they use it, and what they see as the synergy between them and Canada Post?

[Art Sinclair]

Again, it's the small business sector that we've heard from. The larger businesses—for example, one of our major employers and members is BlackBerry—do everything electronically.

It's interesting when we get into that definition of what a small business is. I believe, generally, a small business is 100 employees and under, a medium business is 100 to 500, and a large employer has 500.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

What did the small business sector tell you?

[Art Sinclair]

They tell us that they still use Canada Post.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

And do they like the service, or would they like to see some changes in the service model?

[Art Sinclair]

I mean, there are complaints about the speed of getting a package, say, from Kitchener up to Halifax.

Their key consideration is cheques. If they have an invoice going out and they have a cheque coming back, that's their concern.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

One of the recommendations that the task force made was that it has to have alternate day delivery. The businesses tell us that won't work for them.

What are your thoughts on that?

[Art Sinclair]

I believe there was reference in the report to maybe tiered pricing where, in fact, you look at different types of pricing for different types of services.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

No, one of the suggestions of the task force and the five-point plan that Canada Post had is to do alternate day delivery. When we were asking that of businesses just this morning, they refused. They said they cannot afford it because, for them, cheques and invoices have to have timely delivery.

I guess we are in a conundrum, because we're listening to everybody. Canada Post is recommending something, and the task force is saying that this is a good recommendation. What would you suggest we do as a compromise?

[Art Sinclair]

I would agree that alternate day service would not be viable. I think we need regular daily service.

I would say, and this is based on some feedback, that people will pay if it's competitive. If they get good service, and if it's competitive with the competition, then they'll look at it, because, of course—

[Yasmin Ratansi, Liberal, Don Valley East, ON]

In the mail delivery system, there is no competition because Canada Post is a crown corporation and that's its job. It has the logistical environment and the infrastructure in place. If the competition ever came in, then would your suggestion be to privatize?

[Art Sinclair]

I was thinking of competition in terms of parcels. The competition is Purolator. In the business community, particularly for companies that do online service, where people order things from them online, they have a number of options to deliver their goods to the customer.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

It was interesting, because when we talk about the uncertain financial picture of Canada Post...we had a professor who did a whole review of it. She said that the Ernst & Young report said the projection is $63 million in deficit, yet in the first quarter it has made $45 million in profit, which is a $108-million turnaround.

With the discrepancy between people, the union doesn't buy the figures. We haven't sat down and looked at the figures. The bottom line is that those are Canada Post's figures. When it comes to sustainability, there's a whole division as to whether Canada Post is sustainable or not. There's also $650 million in corporate executive salaries. We have to balance the whole thing.

The professor also made an interesting comment. She that Canada Post management lacks imagination. It cannot think outside the box. The only thing it thinks to do is cut labour costs.

You were with the Chamber of Commerce. You have a lot of creative, innovative businesses. What are some of the innovative solutions that balance Canada Post as a business and as a service?

[Art Sinclair]

I have somewhat of a background in government. Going back 20 years there was a fundamental shift in the way government in North America operates. It wasn't just here with Paul Martin in Ottawa and Mike Harris in Ontario, but even with Bill Clinton in the United States.

I think we started going in to a paradigm that government is not going to be all things to all people. Government has identified what the priorities are for government. What should the government deliver? What should the private sector deliver?

I think that's the key challenge for Canada Post going forward. What are the key businesses, what are the priorities, what is Canada Post going to do, what is Canada Post going to do well, how is Canada Post going to deliver that service cost efficiently, and what services should Purolator or the private sector competitors in parcel delivery be doing?

[Yasmin Ratansi, Liberal, Don Valley East, ON]

The operation review should have taken Canada Post as a business, but also as a service, because that's a symbol. It is Canada Post that goes the last mile. The last mile means where there's no road, and Canada Post goes and delivers.

We are a very large country, and we have to be mindful of the remote areas. If we want to keep Canadians connected, we need to think of innovative ways to make Canada Post relevant.

[Art Sinclair]

I agree with that. In the analogy there, you're talking about the last mile. The model we're most familiar with here in the province of Ontario is Ontario Hydro. A hundred years ago, Sir Adam Beck, who grew up by the way in Kitchener-Waterloo, but is notably from London, and he moved there as a young person....

Ontario Hydro, or the Government of Ontario, decided that as a utility they were going to deliver electricity as an economic development to all of Ontario. That was 100 years ago, and as anybody here on this panel from the province of Ontario knows, we have serious electricity distribution problems in the province of Ontario right now with costs, production, and our economic competitiveness.

That is the key challenge. How do you serve everybody in a cost-effective nature? It's the same thing with transportation in Canada. We have remote areas that need service, but the airports cannot do it by themselves without some type of subsidy. I think that's what we have to look at.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. McCauley, for seven minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Mr. Sinclair, thanks for being with us today. As a former resident of Kitchener, I can say it's a pleasure to be back here—

[Art Sinclair]

Well it's a pleasure to have you back, sir.

[Kelly McCauley, Conservative, Edmonton West, AB]

The place looks fabulous.

We've chatted a lot, obviously about Canada Post and financing, and we've had a whole slew of...I can only call them self-interest or special interest groups, saying give us more, give us more, don't charge more; we want more, but pass the cost on to someone else.

The results of the task force are based around self-sufficiency for Canada Post. Representing job creators, business people in the area, I'd like to hear your opinion on whether businesses are looking to maintain what they currently have but are willing to pay more for stamps or higher costs. Or, do they believe the taxpayers in general should subsidize businesses to keep things low, or should we continue to look for alternatives?