Government Operations Committee on Oct. 31st, 2016

[Bill Mackrell]

There's an ongoing decrease in transaction mail. It's fairly predictable over the last few years. The correction, I would call it, back in 2014 was actually welcomed by Pitney Bowes. It was a change to a more commercial-based pricing model where mailers were mailed more often. They got a better rate, and certainly mailers who prepared their mail for Canada Post in a better fashion got a better rate. In that regard, it was a good move, and we saw it as being progressive. It was actually following the lead of many other postal jurisdictions around the world, which basically incentivized mailers to use postage meters and other forms of technology to make their postal operations more effective.

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

As a business that's involved in servicing the delivery side of the business, where do you see the innovation within the next five or 10 years? Where do you see the industry going? You've mentioned parcel delivery, but what about innovation within parcel delivery?

[Bill Mackrell]

I think a big part of that is getting easy access to parcel delivery solutions for Canada Post. Canada Post can work with technology firms like Pitney Bowes and others who are developing those solutions to make it easier for clients to access, pay for, and get lines of credit for parcel shipments. That's where I see the innovations coming, with ease of access and the ability to pay for those services.

On the direct marketing side, I see intelligent mail, where the right piece of mail gets to the right address at the right time. It's a more effective use of marketing spend and a better return on investment for marketers.

On the parcel side, it's technology innovation and on the marketing side, it's smarter marketing.

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

Great. Thank you.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Clarke, you have seven minutes.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

Gentlemen, thank you for being here this evening.

I'll start with you, Mr. Mackrell. Do you think Canada Post should provide other services such as banking or government services, in particular passport services? What's your opinion on this issue?

[Bill Mackrell]

My opinion on that is, managing a postal system is a very complex business. I'd be concerned about Canada Post getting too far away from its core mission. Certainly, I'd encourage Canada Post to investigate adjacent spaces. In the report, there were several ideas I thought were certainly worth pursuing.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Can you provide an example?

[Bill Mackrell]

On the final-mile mail delivery, I think there's something there. It's a little tricky getting the pricing right and making sure you get the right competitive advantage while you're delivering the final mile, but there's an opportunity within that space there.

Synergies with Purolator was another discussion point in the paper. Government service is intriguing. It's in an adjacent space. Renting advertising space, having fleets of trucks, real estate, and what have you, I think there are opportunities there. There are areas where, I think, they can logically expand without getting distracted from the core mission of delivering the mail.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

That's interesting. Today, most of the witnesses, like you, emphasized how important it is for Canada Post to not get involved in other services that would constitute distractions and to remain focused on its core mission. This seems to be the theme of the day.

In your presentation, you suggested that Canada Post should control its costs. That's obviously the most laudable element. Also, it was indicated that labour accounts for 70% of Canada Post's total operating expenses. How should labour costs, which represent 70% of the total costs, be controlled?

[Bill Mackrell]

Canada Post is in a very difficult position with declining mail volumes and such a large percentage of its cost structure tied up in labour. As I read the documents, I think there is an opportunity through attrition over the coming years. There's a large population of Canada Post employees who will be retiring and there's an opportunity there to reset the footprint in accordance with where the business is heading.

I think they should look at all elements of cost reduction. It's just smart business to do that. Obviously, the key there for Pitney Bowes and others in our industry is back to the affordable and predictable rates. Managing cost structure in this business with the challenges it has is very important. The path of last resort has to be pricing, because that would have a knock-on effect that I don't think the industry would be very pleased with.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you, Mr. Mackrell.

Mr. Bacon, Mr. Mackrell spoke of having further synergies between Purolator and Canada Post. The report prepared by the task force mentioned that Canada Post could save around $16 million annually by having further synergies with the Purolator group.

Do you agree with that statement?

[Stewart Bacon]

I think this number is the result of a study commissioned by Canada Post. I don't think it's my role to comment on the $16 million.

At Purolator, we're always looking for ways to create synergies with Canada Post. We did so, for example, by entering into an air cargo contract.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Are there any obstacles blocking these collaborations? If you were to collaborate more, what do you think would be the main challenges?

[Stewart Bacon]

I don't think there are any obstacles per se. On the contrary, I think both parties are very positive about looking for new ideas. It's simply a matter of coming up with good ideas and being able to use them.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

If you don't mind, I would like to have an idea of Purolator's current financial situation.

[Stewart Bacon]

Our financial situation is very good. We've been making profits for about ten years. Of course, the profits vary from year to year, but there are profits.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Do your fiscal projections match your current results?

[Stewart Bacon]

I think so. We're expecting the team to generate the projected profit this year.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

I have a standard question. How have the changes in parcel delivery in recent years affected Purolator and how have you adjusted to the situation?

[Stewart Bacon]

What changes are you talking about?

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

There has been an increase in parcel deliveries because Canadians are ordering their products more and more often over the Internet.

[Stewart Bacon]

Indeed.

As I said earlier, Purolator has always focused mainly on the business-to-business model. The current major increase in the market applies more to the business-to-consumer model. The increase is the result of online shopping. This has created many opportunities for Canada Post, because it has a suitable delivery network.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

So it hasn't necessarily affected you.

[Stewart Bacon]

Pardon me?