Government Operations Committee on Oct. 31st, 2016

[Nick Whalen, Liberal, St. John's East, NL]

Okay.

I'll hand my time over to Mr. Ayoub or Ms. Shanahan for the last two minutes of the round.

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

Thank you, Mr. Chair.

I have no more questions.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

I have one. I'm interested in this idea of accessing rural and remote locations.

Mr. Druker, it's maybe more your question. Your UPS stores are located where?

[David Druker]

In small urban, suburban, and even in some cases, rural markets.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

Is that an interesting option, one that a UPS Store would—

[David Druker]

Certainly.

We're currently expanding, and we do look at the demographic growth and the urban sprawl, and where populations go. Again, we cater primarily to small businesses in Canada, businesses with zero to five employees. A lot of those exist in rural locations where they don't have full infrastructure. We're expanding into those markets.

All that real estate in downtown Toronto, downtown Montreal, downtown Calgary is tied up already. As we look for our expansion in the future, 100% rural is an option.

[Brenda Shanahan, Liberal, Châteauguay—Lacolle, QC]

You do see expansion opportunities there. This is really pie in the sky, but since Canada Post already has existing physical assets, is it possible to be sharing facilities?

[David Druker]

We would welcome the discussions. We haven't had the opportunity to have the discussion, but certainly there is an existing portion of the footprint that would be attractive to us to either co-locate or take over, if that's what Canada Post wanted. What we were looking for is the opportunity to have those discussions and see where the meat on the bone is for both sides.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Ms. Falcone and Mr. Druker, thank you for coming here, and thank you for your testimony. It has been very helpful. If you have additional information that you think would be of benefit to our committee, then you can submit that information directly to our clerk. With that, once again, thank you. You are excused.

We will suspend for a few moments while our next witnesses come to the table.

[The Chair, Conservative, Tom Lukiwski]

Colleagues, I'd ask you to take your seats at the table please, and we'll commence.

Thank you to our witnesses for being here with us. Mr. Mackrell and Mr. Bacon, I assume you've been watching some of the proceedings, and you probably know how this works. We'll ask both of you to give a brief opening statement, for no more than five minutes, and following that, we will have a round of questioning from our committee members.

With that brief introduction, Mr. Bacon, we have you first on our speakers list. You have five minutes. Please, the floor is yours.

[Stewart Bacon, Chairman of the Board, Purolator Courier Ltd.]

Thank you very much.

Members of the committee, good afternoon, bon après-midi. I am pleased to be able to speak to you about Purolator in the context of the task you have taken on, and I hope my brief remarks will enable you to understand what Purolator achieves for its customers and the contributions that Purolator makes to Canada Post. Let me start with an overview of the company.

When most Canadians hear the world “Purolator”, they immediately think of a courier, because the couriers are our most important ambassadors. For many customers, the courier is Purolator and is responsible for delivering the service as well as for the relationship that's created with the customer. This courier person gets urgent packages delivered from businesses to businesses across the country, because Purolator is the leading business-to-business courier in the country.

But we do a lot more than only a courier service. We are a large organization. We have experience. We have a very complete network across the country, and our integrated business-to-business solutions are enjoyed by many, many Canadian businesses.

Our services and solutions are, in fact, critical to many businesses, primarily in the busy urban centres. We are proud to have more than 140,000 customers, large and small, across the country, in just about every industry. We employ more than 10,000 people.

We have an iconic Canadian brand. If you ever come across brand surveys, the Purolator brand is a very strong brand, very well regarded, and a strong Canadian icon. I think the fact that Purolator is Canadian is a very important consideration.

Purolator specializes in the air and surface forwarding of express, freight, and parcel shipments, customs brokerage, and fulfillment and delivery services. We have a broad offering that we integrate together and piece together for our customers.

We have a consistent track record of profitability over the past decade. In 2015, Purolator generated $1.5 billion, which is just under 20% of the Canada Post Group of Companies' revenues. We're the second largest member of the Canada Post Group of Companies. We're 91% owned by Canada Post and, as I'm sure you have discovered in this work, it's not unusual for a postal administration to have invested, as Germany, the U.K., and other countries have done, in a courier service.

What's our role in the Canada Post Group of Companies? We bring supply chain know-how and business-to-business expertise to the group. Our foothold in the U.S. market through our U.S. subsidiary also contributes to what we deliver to Canada Post. Businesses often demand integrated solutions and together, that's what the Canada Post Group of Companies can deliver.

In Purolator, we have been focused and continue to focus primarily on the business-to-business segment of the market. Canada Post offers its services primarily to businesses that have packages to be delivered to consumers, and their reach across the country and the number of locations they have, as you just talked about with the last witnesses, is the attractiveness of Canada Post when it comes to the business-to-consumer market.

Purolator operates a network that allows on-time, next-day, sometimes time-specific deliveries. That has been the bread and butter of Purolator from the outset. Purolator also has delivered dividends to Canada Post over the last years in the order of $10 million to $11 million every year.

Our competitors are multinational and global, for the most part, although in Canada we have many regional courier companies and small operators. The big guys are there, but for sure, there are many, many small businesses and regional businesses that are in the courier business.

The business-to-business market is shrinking. Think about critical documents. Ten years ago, five years ago, that was a very important part of the Purolator business, and today we have many fewer documents being delivered on a day-to-day basis. We need to get refocused, doing a better job of continuing to be a force in the business-to-business market but at the same time looking for opportunities in the business-to-consumer market.

[The Chair, Conservative, Tom Lukiwski]

Could I get you to wrap up, sir.

[Stewart Bacon]

Okay.

Purolator International helps bring this together. We plan to harmonize our go-to-market strategy with some big retail customers. Purolator also uses the Canada Post network on a commercial basis to get parcels delivered into rural areas.

There are synergies with Purolator and with Canada Post, and we are a big contributor to the success of Canada Post.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Mackrell, you have five minutes, please.

[Bill Mackrell, President, Pitney Bowes Canada]

Mr. Chairman, members of the committee, thank you very much for the opportunity to be here today.

My name is Bill Mackrell. I am the president of Pitney Bowes Canada. For those of you who don't know our company, Pitney Bowes supports posts in countries around the world. We've worked closely with Canada Post since 1923. We're often recognized as the inventors of the postage meter. However, we also provide a wide array of software and hardware solutions that support the mailing, shipping, and marketing efforts of many of the same large and small businesses we share with Canada Post. We're also very proud to note that Pitney Bowes currently employs more than 500 Canadians coast to coast.

Pitney Bowes serves more than 100,000 Canadian businesses. The majority are small and medium-sized businesses, but it also includes many of the largest mailers in Canada. We facilitate thousands of domestic and international parcel shipments to Canadians every day. We efficiently and securely collect more than $500 million in annual postage revenue for Canada Post through our postage meters and parcel payment solutions.

We are pleased to see the government spending considerable time understanding the complex and significant issues facing Canada Post and the mailing economy that it supports. On behalf of Pitney Bowes, I would like to add our perspective to this national discussion.

In our written submission to the task force this summer, we outlined a series of issues that we think warrant attention during the review. We discussed the importance of Canada Post: first, focusing on their core business strengths; second, controlling costs while minimizing any impact on services; and third, adhering to pricing models that promote the long-term stability of the business. We would like to reiterate some of those points in light of some of the recommendations outlined in the task force report.

First, we encourage the government to protect the five-day-a-week delivery model. This is critical in order to maintain mail volume and appropriate service options for advertising mailers. The five-day model is an integral part of Canadian business marketing strategies and is a core component of the billing and payment infrastructure for small and large businesses. These businesses rely on having these much-needed funds in the bank as soon as possible. The importance of the five-day model for Canada Post's future should not be understated. It is critical to the economy. It is one of the key differentiators in the parcel space, and is one of the core capabilities Canada Post will need to retain to be able to capitalize on the last-mile opportunities for parcel delivery.

Second, to reduce potential for declining mail volumes, Canada Post needs to assure mailers that their rates will be predictable, stable, and affordable. We are concerned about the impact that significant rate increases would have on the volume of mail and the success of Canadian businesses. Rate structures should be developed with pricing incentives that encourage the design of highly efficient mailings to help the post control costs while encouraging the post's commercial mailers to expand their use of mail.

Third, by developing rates that encourage high-efficiency mail-piece design, Canada Post can gain efficiencies and help from the mailers themselves. We were impressed with the 2014 decision by Canada Post to move in this direction. Technology like postage meters helps simplify the payment process for mailers and makes the collection of revenue and the processing of mail easier for Canada Post. By following the lead of other countries that provide rate incentives for mailers who use technology, we saw a win-win for Canada Post and their customers who are best positioned to maintain or increase mail volumes.

As Canada Post and the task force have mentioned, parcel growth has already taken place, but it is important for Canada Post to maximize its opportunities in this space. Pitney Bowes is pleased to be working with Canada Post to bring new parcel label printing and postage payment technologies to shippers across Canada. These technologies will help make parcel shipping more efficient for Canada Post and our clients.

In addition to the traditional improvements in process and technology, we're excited about the opportunity for growth in parcel volume from cross-border e-commerce. Pitney Bowes recently released our annual global online shopping survey. It noted that Canadians routinely shop internationally for goods not readily available in Canada, but there were complaints about duty, tax, and shipping expenses. Cross-border e-commerce is also helping Canadian businesses grow. We are hopeful that the government will soon change the 30-year-old de minimis policy, which will also help increase the volume of parcels to and from Canada.

In closing, I would like to emphasize the importance of maintaining the five-day delivery model for both Canada Post's existing mail business and its fast-growing parcel business. We ask the committee to ensure that we have a pricing and operations model that ensures predictable, stable, and affordable rates for mailers. We encourage the continued review of cost control and efficiency measures to streamline operations. We encourage the post to reach out to private sector partners for innovative ways to ensure that parcel and mail opportunities are maximized.

Again, we would like to thank the panel and express our admiration and appreciation for the extensive research and analysis that has gone into this already.

I will forward copies of my remarks in both official languages.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

We will now enter our seven-minute round of questions.

Mr. Drouin, you are first up.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

I want to thank both witnesses for being here today.

Mr. Bacon, I have certainly worked with Purolator. I can tell you that 15 years ago, I was satisfied with it. I used to work for a smaller company and we always relied on Purolator for deliveries.

You have mentioned the shift from documents every day. Businesses are no longer shipping documents as much, so how do you see Purolator readjusting with that shift? How do you see it ensuring that it can still survive in a non-document world in the future?

[Stewart Bacon]

I don't want to put too much emphasis on documents, but it is true that those documents are decreasing as a percentage of the total volume. The other thing that's happening in the marketplace is a move from speed to more focus on cost. With the type of parcels that are being delivered by Purolator and by our competitors, urgency is always there for some, but by and large there's less focus on speed and more focus on reliability and getting it there on time. Purolator has always been very good at getting things there on time. The movement away from speed as a focus means you can take longer to get the parcel there, and it means that the customer is expecting to pay less. There's a pressure on revenues as this phenomenon takes hold in the market.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

We certainly heard that from eBay Canada this morning, suggesting for Canada Post to offer a slower service as long as it's predictable. You're right.0 People want slower speed, but they still want to know when it's going to get there. Is that something that Purolator is contemplating?

[Stewart Bacon]

Well, I think we've always done that and we certainly invest in technology and are creative about using technology to provide more and more information on time to the recipient. But this is the challenge of Purolator today, and this is what we're working on to maintain our market share in a market that is evolving in that direction.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

You have also mentioned that you're looking toward perhaps getting into the B-to-C market area. Are you speaking with Canada Post about this, or is there some cross-pollination going on?

[Stewart Bacon]

Purolator has always had a small percentage of B-to-C deliveries, mostly because there are customers who have lots of B-to-B deliveries and a small quantity of B-to-C deliveries, and so if it can stay with one supplier, that supplier gets it all. We are not jumping into B to C; that is for sure.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Okay, so is there no strategy for Purolator to jump into B to C with Canada Post at all?

[Stewart Bacon]

No, we have it as part of our mix today. It's something we can do, but it's not where the focus is going to be for Purolator.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Okay, that's great.

Mr. Mackrell, you've mentioned the potential of a rate increase being bad for business. We know Canada Post has increased its daily letter mail service. There was a major increase in 2013 or 2014, I think it was. Have you noticed a decrease in transaction mail or business for you guys?