Government Operations Committee on Oct. 7th, 2016

[Louis Thériault]

The full transfer—

[Kelly McCauley, Conservative, Edmonton West, AB]

I'll assume it's not postal banking.

[Louis Thériault]

No. Actually, in the six scenarios we put forward around the wage, that was unrealistic. It was just to indicate the magnitude of the challenge. With regard to alternate-day delivery, I know Ernst & Young came out with saying that there would a small potential gain from that. I understand it's linked to the core infrastructure requirement and fixed-cost nature of the business.

In fact, some of the positives on the parcel side require some infrastructure investment, which means some of the savings will not necessarily pan out to the level we thought.

[Kelly McCauley, Conservative, Edmonton West, AB]

Right.

[Louis Thériault]

There's a dynamic aspect into this that needs to be considered. The changes that have been put in place have, in fact, delivered some results. At the end of the day, whether it's postal banking or other solutions, I think the overarching conclusion of the report was that there is no single solution that's easy to put in place, and they're not cumulative. That's the other thing we need to remember.

We look at all these potential changes that Canada Post can make. There is a synergy or some overlapping impacts between one thing and another, so there's—

[Kelly McCauley, Conservative, Edmonton West, AB]

They're not stand-alone.

[Louis Thériault]

They're not just stand-alone or cumulative over time. They're complex, so that's the overarching conclusion. There is another thing, and I'd like to make that point really clear, because that's the bread and butter of the Conference Board, and I am an economist myself by training. When tough questions like that emerge, many solutions are put forward. The real challenge is to measure the actual real change that a solution will have over time.

We look at the scenarios; we forecast; and we get an indication of the magnitude, but then we have to track that over time and change course. We're dealing with something that, in terms of core structural pressure, is unprecedented.

[Kelly McCauley, Conservative, Edmonton West, AB]

Are you in general agreement with the numbers put together by the task force?

[Louis Thériault]

Overall, I would say yes. In fact, I would have liked to see an effort to quantify some of the pricing strategy, for example, and a review of labour and pension costs. A series of other things have been mentioned, but I think that's something that could be beefed up, so to speak.

In terms of what has been measured, it's roughly in line except for the alternate-day delivery, but I understand there are some structural elements to that which weren't announced.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thank you very much.

[The Chair, Conservative, Tom Lukiwski]

Ms. Ratansi, for our final intervention, go ahead for five minutes, please.

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

Thank you very much. Because I have five minutes, I'm going to concentrate on Mr. Thériault and Mr. Anderson.

If you look at the Conference Board of Canada, you can see the confusion we're getting into, because the union says this and you say that. Everybody debunks somebody's myth. When you're looking at an operation and looking at the financials of 2013—and you looked at 2012 and 2011—did you take into consideration the anomalies, the pay equity settlement, the fact that they instituted electronic warehouses to the cost of $2.1 billion while letter mail was going down? I'm an ex-CPA, so I know what I'm talking about. Could you tell me if you took that into consideration?

[Louis Thériault]

Yes, in fact, the volume of activity, the price, the cost structure that was—

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

Was the sunk capital cost of $2.1 billion taken into account as well?

[Louis Thériault]

The sunk capital for...?

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

It was $2.1 billion—

[Louis Thériault]

What was that for, in particular?

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

They had converted the warehouses into super warehouses. Electronic mail was delivered there so that it created some confusion with regard to routes, etc. Did you take that into consideration?

[Louis Thériault]

I would have to look at the specifics of that, so I can come back to you on that in particular. For the modelling exercise, I wasn't overseeing that at the time, but I've reviewed the work and I stand behind it, of course. That was the specific assumption of how cost adjustments were made, and it has to be done like that, recognizing—

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

Well, I hope so.

[Louis Thériault]

It's kind of an obvious—

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

Therefore, your projections for the future years showed losses, and yet Canada Post made profits, and that's where we have a problem. We'd like to see where everybody's analyses came from.

When you look at a corporation and you're saying there is this pension liability, would you suggest that the charter of Canada Post be changed? They have to calculate it into insolvency. So it's not their current liabilities but their long-time liability, if you were to retire 30 years from now. That is something that they have to calculate according to the international financial reporting standards.

So would you suggest that it be removed?

[Louis Thériault]

I can't suggest that, because I haven't done the actual math behind it, and that's not my role. My role is just to take from the analysis—

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

But your business is—

[Louis Thériault]

I'm just saying this is the elephant in the room. If you change that—the break they have right now, the deferral—that would change the nature of the whole financial sustainability of Canada Post for sure.