Evidence of meeting #53 for Government Operations and Estimates in the 42nd Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was post.
A video is available from Parliament.
Partner, People Advisory Services, Ernst & Young
The plan is in a solvency deficit.
Conservative
Kelly McCauley Conservative Edmonton West, AB
The current surplus is a catch-22, because Canada Post has been required to pour money in for the solvency, so the only reason we're in a current surplus is because of that money they've poured in to match the solvency requirements.
Partner, People Advisory Services, Ernst & Young
The plan is not in surplus, other than the small surplus—
Partner, People Advisory Services, Ernst & Young
—on an ongoing concern basis, if that's what you're referring to.
Conservative
Kelly McCauley Conservative Edmonton West, AB
That's because Canada Post has thrown in a couple of extra billion....
Partner, People Advisory Services, Ernst & Young
Canada Post had the exemption from solvency contributions, so it's not the solvency contributions that led it there. I think the biggest difference is the way these valuations are done. We're assuming a much higher discount rate on an ongoing concern basis, which reduces the liability, and we're assuming a very low discount rate on solvency, which inflates the liability. That is the difference that is accounting for a small surplus here and a large deficit there.
Conservative
Kelly McCauley Conservative Edmonton West, AB
One of the items you mentioned, not on the pension, but just on door to door, on page 98 of your report you talk about—
Conservative
Conservative
The Chair Conservative Tom Lukiwski
Mr. McCauley, I believe we would need to be in camera if we want to discuss any of that.
Conservative
Kelly McCauley Conservative Edmonton West, AB
All right, I will skip that question, then.
I want to follow up on Mr. Ayoub's question.
Mr. Spear, you've mentioned quite a few items for revenue raising, but in the grand scheme of things, on a $6 billion a year giant company, they're almost like rounding error items. One of the things we heard from a witness this morning from eBay was to stick to your core, and stick to what you know. Do you think that's a valid way to go rather than chasing a panacea, such as postal banking, or a couple of million dollars here and a couple of million there?
Partner, Transportation Practice, Oliver Wyman
I do think there is a lot of merit in the strategy of sticking to your knitting and core focus. I think there was a legitimate risk of misinterpretation of our report, which cast a wide net and evaluated almost 40 potential opportunities, which clearly this group did not misinterpret. We purposefully narrowed down those that we felt would not be in the long-term interest of Canada Post or necessary to Canadians, and we settled on around seven or so ideas for consideration. Even within those, there are a few that are relatively modest. If we thought that postal banking was going to be a billion dollar idea for profit generation, then it would have been one of our strong recommendations. It's simply that we don't think the core capabilities are present today with Canada Post.
October 31st, 2016 / 12:40 p.m.
Conservative
Kelly McCauley Conservative Edmonton West, AB
Very quickly, if we went to full postal banking, how many dollars would be required to capitalize us, if we were to go with full services across the country in all 6,000.... What's a ballpark figure, in the billions?
Partner, Transportation Practice, Oliver Wyman
It's a fair question, but it really depends on the line of business that Canada Post gets into. As we've contemplated postal banking, it's more of a storefront services provider and interface to other major banks.
Conservative
Conservative
The Chair Conservative Tom Lukiwski
We'll have to cut it off there.
Madam Ratansi, you have five minutes. Do you wish to be in public?
Liberal
Yasmin Ratansi Liberal Don Valley East, ON
In public, please.
Thank you all again.
I'll make some statements, and then you'll all have chance to respond.
We hear from the ground, and we have been consulting widely, that for 19 of the past 20 years Canada Post has been making profit, giving dividends, and paying taxes, and it's billions of dollars. The assumptions you've made are probably a little skewed because you had to take data, which was sometimes consistent and sometimes was not consistent. You have answered that in your previous questions, but what I also understood from the ground was that Canada Post management is not thinking outside the box, and it does not have an integrated approach to thinking. Now that's not your mandate, because your mandate was totally different. We have to find a fine balance. When you say to stick to your knitting, if you stick to your knitting and the wool is going, what the hell do you do then? You have to think creatively and outside the box. My question is, what other strategic areas would you look at?
You're suggesting that Canada Post in its current format might just about disintegrate. Should it?
Mr. Spear, the question I have for you specifically is about Australia. I looked at Australia, and it is in the same ballpark figure as us with a large land mass and a high rural population, but it has very successful postal banking. With a population of 24 million, it seems to be making $6.6 billion in revenue. What can we learn, and have you had the opportunity for lessons learned? We cannot just pooh-pooh it because maybe in 1968 the postal bank was successful, and then the banking lobby came. We need to be balanced. Give me your analysis of it, and then I'll ask the other question.
Partner, Transportation Practice, Oliver Wyman
To your first question, I certainly agree that sticking to your knitting if the wool is running out is not a viable long-term strategy. While we certainly were not mandated to do a managerial assessment of Canada Post, there is certainly no shortage of ideas being explored by Canada Post within the context of that business about how they can leverage it further and make it more profitable. As part of the study, we did get, in some detail, into some of their past investigations of specific business opportunities and where there might be opportunities for both cost reductions and incremental revenue, and we found them to be fairly comprehensive.
Liberal
Yasmin Ratansi Liberal Don Valley East, ON
Okay. Because it is referred to in the report, perhaps we won't talk about it at the moment.
Therefore, my question is for the accountants here. You are EY. Would you give your business to PwC?
Partner, Advisory Services, Ernst & Young
Would we give our business to a competitor? No.
Liberal
Yasmin Ratansi Liberal Don Valley East, ON
Good. Why is the corporation opening franchise stores next to the corporate stores and passing on retail business to them? Did anybody talk to them about why this is the strategy? They do not charge a franchise fee. Those are the questions we are hearing from the ground, and we need to know.
Partner, Advisory Services, Ernst & Young
I think my colleague who is here from Oliver Wyman can answer that very specific question.
Partner, Transportation Practice, Oliver Wyman
I'll do my best. Thank you for the question.
The question is why Canada Post is franchising in areas that might otherwise have a post office to serve the public need. There are a number of reasons. One is that certain areas don't provide as much coverage within a certain distance radius, so there is a strong case for franchising in those areas. The second is that the franchisees' hours are actually longer than those of a particular post office. While I accept your point that they are creating competition, I would also submit that they are improving service to Canadians by increasing their amount of franchising.