Government Operations Committee on Oct. 31st, 2016

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

The next thing I want to know is, what do we do in rural and remote areas that do not have a franchise post office, if we want social cohesion and economic growth?

[Bruce Spear]

I would argue that some of the best opportunities for franchising are in the rural and remote areas, because it doesn't require significant real estate investment and other staffing for thinly used services that Canada Post would offer, and instead allows you to piggyback on investment made by others in that market to provide better service to Canadians.

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

Thank you.

[The Chair, Conservative, Tom Lukiwski]

Mr. McCauley, you have five minutes, please.

[Kelly McCauley, Conservative, Edmonton West, AB]

I want to follow up on the retail question. My understanding is that, if you have a Canada Post store and a retail next door, and the retail is selling stamps, etc., that's not shared profit. That's not profit going to Shoppers Drug Mart. They are selling Canada Post services. The more retail you have selling your services.... The monies all go into Canada Post anyway for these services and stamps sold, do they not?

[Bruce Spear]

There is a split, and Canada Post is earning a profit on the services sold by the franchisees. That's correct.

[Kelly McCauley, Conservative, Edmonton West, AB]

I'm short on time, so quickly....

A lot of the issues you brought up, and you mentioned a report, seem to come back to labour and the labour agreement. Going forward, do you see this as a stumbling block, perhaps, for a lot of the ideas that you mentioned, whether it's shared or new services?

[Bruce Spear]

Thank you for the question. I'll address it in the context of the two most significant opportunities—the first being alternate-day delivery and the other being the retail footprint—and maybe turn it over to my colleagues.

On alternate-day delivery, there is certainly a significant number of restrictions as to how Canada Post can adjust its service footprint and achieve savings by making a change from daily to alternate-day delivery. I want to point out that we did evaluate alternate-day delivery across the board and alternate-day delivery only for mail services, and the latter was what survived as an option. Parcel delivery would remain daily and might even go to six days a week, given the market demand and the profit motive.

Yes, there are significant constraints, but those constraints are timing issues as to when those savings can be realized, as opposed to whether or not they can be done.

On the retail footprint, there is the CUPW agreement and the moratorium, which materially limits the number of physical branches that can be rationalized or converted to franchises today. That would require policy action in order to achieve those savings.

[Kelly McCauley, Conservative, Edmonton West, AB]

Gentlemen, we're really short of time.

I've asked before, but now we're in public. Is switching over to community mailboxes the number one thing that we can do to help rationalize costs and continue services to Canadians at a reasonable price?

[Pierre Lanctôt]

When fully implemented, conversion should provide $400 million to $500 million of annual savings. That's certainly an important measure that could be implemented in a relatively short time.

[Kelly McCauley, Conservative, Edmonton West, AB]

It's tough to use a crystal ball, but do you see any massive disrupter coming along that could significantly negatively affect Canada Post parcel delivery? We're seeing that in a couple of years it's going to be 50% of the revenue. Uber is talking about getting into parcel drones.

How big a risk is it that in two, three, or five years from now we're going to have a massive problem because of this?

[Pierre Lanctôt]

It is a big risk. We're seeing changes in technology: 3-D printing will have a significant impact on parcels as goods are being produced or printed closer to reality, and drones.... It's very hard to assess how fast and how—

[Kelly McCauley, Conservative, Edmonton West, AB]

It really underlines just how important it is that we as a group come up with some immediate solutions to address these looming losses.

[Pierre Lanctôt]

Yes. It's an important business.

[Kelly McCauley, Conservative, Edmonton West, AB]

You're right. The $700 million could be very optimistic. It could be $1 billion if some disrupter comes along and wipes out parcel service delivery.

[The Chair, Conservative, Tom Lukiwski]

Mr. Whalen, you have five minutes, and we're in public.

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

Mr. Chair, before I ask questions of the witnesses, I'd like to know whether you would consider it fair game for me to ask them about things that specifically aren't in the report.

[The Chair, Conservative, Tom Lukiwski]

I would; however, I would also ask the witnesses to comment on whether they think it would be breaching any confidentiality.

Proceed with the question, please.

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

Mr. Spear, I'll start with you.

In the in camera session, we had some discussions. It appears from my perspective that there was no analysis done on whether or not Canada Post should pursue a digital or a future services-style bank at the higher end of the market, accessing SMEs that are already their customers in packaging.

Are you limited in your ability to assess those aspects of future banking growth by the corporation, or was Oliver Wyman given free rein to assess all possibilities of a profitable bank?

[Bruce Spear]

That's a good question.

I would submit to you that we did evaluate all different types of business banking models, as well as retail banking models. Our first filter was the strategic assessment and fit assessment, and the second was the business case. On that basis, it wasn't deemed to be a particularly compelling opportunity or a public necessity, in our view, for Canada Post to get into small and medium-sized banking.

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

We've heard a lot about the United States subsidizing its postal service to the tune of $5 billion a year. From your assessment as an international postal expert, do you feel that this provides their industry and their digital marketplace with an advantage that Canada does not enjoy because we don't have a similar subsidy?

[Bruce Spear]

I really couldn't comment on whether the USPS enjoys a superior level of subsidy and whether that translates directly into market advantage.

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

Okay, fair enough.

Now I'll turn to the folks from Ernst & Young.

Mr. St-Jean, when we looked at community mailboxes as a delivery model, we heard different numbers in terms of how much cost savings could actually be generated. When we tried to determine whether there would be any net effect on revenues, we didn't see any analysis in that regard. When I think of people in suburban Canada who have community mailboxes, they might have a preference to order packages that would be delivered to their door by FedEx or UPS, whereas Canada Post is only going to send it to the community mailbox.

Did you examine any market differentials between community mailbox delivery versus door-to-door delivery as it relates to future market opportunities and future revenue opportunities for Canada Post?

[Pierre Lanctôt]

When we looked at the community mailbox, we focused on the conversion. We didn't assess its impact on the revenue side.

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

So, you didn't examine the revenue side.