Government Operations Committee on Nov. 3rd, 2016

[Kelly McCauley, Conservative, Edmonton West, AB]

Let me ask again, just briefly because we're probably out of time.

I think in 2026, it will be a $700-million loss. Do you accept that?

[The Chair, Conservative, Tom Lukiwski]

Sorry, Mr. McCauley. I'm not going to be charging you any time on this, but I think it's worth trying to allow the witness to give you a fulsome response. I'm going to try to moderate that as best I can. I know we're short on time, but if Mr. Bickerton has salient information, I think we should allow him to present it.

[Kelly McCauley, Conservative, Edmonton West, AB]

We get a quick overtime. Let's go.

[Geoff Bickerton]

The Conference Board estimated a $600-million loss this year. This year, we're going to have a $200-million profit, and probably more than that. Ernst & Young estimates a $700-million loss. There will probably be a significant profit in the year that they're identifying.

[Kelly McCauley, Conservative, Edmonton West, AB]

In 2026?

[Geoff Bickerton]

Absolutely.

Now, as a result of this negotiation on direct mail—and it's very important to understand this—as of the beginning of 2018, we are shifting the sizes. That will allow Canada Post, so they've told us, to considerably increase their market share. There's a huge market in direct mail.

On parcels, as Mr. Chopra mentioned yesterday, we have negotiated some very significant changes that will come into effect soon.

As Mr. Palecek said, we are now delivering two out of three parcels in this country. Very soon, that rate will be even higher.

[Kelly McCauley, Conservative, Edmonton West, AB]

It will probably be higher.

I have just a very quick question, then. Under the status quo, no more CMBs have been suggested. Do you believe that in 2026 there will be a profit and not a $700-million loss?

[Geoff Bickerton]

We have never urged the status quo. We came out with our paper in 2010 called “The Future of Canada Post” in which we advocated entering into several new services including postal banking. We are not advocating the status quo. We want Canada Post to expand into new revenue-generating services like the French post office has, and—

[Kelly McCauley, Conservative, Edmonton West, AB]

So, you don't accept Ernst & Young's numbers?

[Geoff Bickerton]

No.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much.

Mr. Grewal, you have five minutes, please.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair, and thank you to the witnesses for coming.

I had a Canada Post town hall in my riding, and it was basically dominated by postal workers. I would say that you are very passionate about Canada Post, which I admire. You guys provide a very good service. My cousin just got hired as a mail deliverer in Surrey, B.C. He's super excited. He enjoys his work. But that doesn't solve the current problem that Canada Post has. At a very macro level, I sum it up in these few points.

Transactional mail is on the decline, but you have more addresses to deliver to.

Your parcel business is increasing, right? But that doesn't offset the fact that there are more addresses to deliver to and there's less revenue coming in from transactional mail.

Then, there all these different proposals out there such as advertizing on your fleet, doing postal banking, reducing your workforce, ending community mailboxes, and doing alternate day deliver to get to a future of sustainability for the organization.

A lot of your recommendations today are based on Canada Post being profitable if you look at the numbers in a particular way versus the international accounting standards way, and we could debate that. We're not going to talk about the numbers per se, since I'm going to give a lot of deference to the fact that you do this job on a regular basis, and I don't. I'm looking at the numbers from an objective point of view, given my past skill set. I don't believe they're sustainable, but let me give you deference and say, “Okay, Canada Post is sustainable.” You're always looking to grow your revenue and reduce your costs, right?

What are the three things that you think Deepak Chopra should do to save Canada Post's future?

[Mike Palecek]

I think one is opening up to innovation in a real way. Postal banking is probably our best road to go on that. If you look around the world, there are whole other areas that post offices have been involved in. In France, for example, La Poste is now a cellphone carrier. You can go and get a wireless plan and buy your cellphone at the post office, as well as do your banking there. I think expanding services is one, and there are a number that we've proposed. I wouldn't want to pick three at random—

[Raj Grewal, Liberal, Brampton East, ON]

Sorry, let me rephrase the question.

Again, even in your ranks, at the postal worker level, they keep on talking about postal banking. It's not as simple as saying, “Oh, Canada Post should do postal banking”, right? There's a financial element to this, to say, “Okay, if Canada Post adopts postal banking, it will provide x dollars of revenue”, right? The assumption amongst your workforce, with all due respect, is that postal banking is the golden egg that's going to save Canada Post and provide hundreds of millions of dollars of revenue. The fact of the matter is that's not going to happen. The reason is that banking needs are already well served in Canada. Not all over the country, but, generally, where most of the population live, people's banking needs are served. That happens to be due to the strength of our banking sector. Wireless? Again, nobody's going to open up the CRTC to provide Canada Post with access, because Bell, Rogers, and Telus control that gambit. That's a discussion for another time.

From an every-day perspective, where do you see inefficiencies in your organization that can be improved upon that will help the financial sustainability of this organization?

[Mike Palecek]

Before I get to that, to hit your point on potential revenues at Canada Post, I would say that with 29% of the population saying they would definitely or probably switch their banking to a postal bank, and with the big six banks making $35 billion in profit last year, I'd say there's a lot of revenue there. I think this government is going to have to answer the question of whether they would rather defend public services or the profits of the big banks.

[Raj Grewal, Liberal, Brampton East, ON]

That's a great political argument, and I congratulate you for making it. The big banks are an easy target, right? But 29% of the Canadian population using postal banking is a massive assumption, in my humble opinion, that doesn't carry much weight. Having said that, we're not here to debate that, right? The question is simple.

On an every-day basis, what inefficiencies do you see at Canada Post that can reduce your expenditures, and where else do you see revenue? Please just put aside postal banking for a second.

[Mike Palecek]

As I mentioned before, Canada Post is rather top-heavy. I don't understand why they need 22 vice-presidents or a CEO that makes twice the wage of the Prime Minister. I think there's a lot of fat to be trimmed at the top, to be honest.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you very much.

[The Chair, Conservative, Tom Lukiwski]

Thank you, committee.

Mr. Palecek and Mr. Bickerton, thank you once again for your appearance here today. As you know, we've just about concluded our testimony. We have a few more hours of witnesses to hear from, and then we'll begin our deliberations. For your benefit and for your interest, I would anticipate that we will be tabling a report in Parliament probably towards the latter part of November. Should you have any information you wish to share with us prior to that, please feel free to contact our clerk directly.

Once again, thank you for your appearance. We are suspended until our next witnesses approach the table.

[The Chair, Conservative, Tom Lukiwski]

Thank you, colleagues.

To our witnesses, once again, thank you for being here today. I know you've probably travelled from distant places to get here. I think you know the process fairly well by now. We will ask for an opening statement.

Madame Bertrand, I understand that you have about a 10-minute opening statement. That will be followed by questions from our committee members. Thank you again for your appearance. Madame Bertrand. The floor is yours.

[Françoise Bertrand, President, Task Force on Canada Post Corporation]

Good morning.

Good morning everyone.

It's our pleasure to be back to meet the parliamentary committee that has been working very hard, from what we've heard. We're quite pleased to hear that, because it means that you'll come up with good recommendations.

On my right is Marena McLaughlin, who you know already; and Mr. Mr. Jim Hopson, who you very well know and has travelled a long way from home. Unfortunately, Krystyna Hoeg could not be with us because she had previous commitments that she could not refuse.

Thank you again for having us.

We are here in front of you to remind you of what you may have forgotten, or what you already know very well. We thought it was important to revisit first, of course, our mandate.

Our mandate wasn't to make recommendations. Our job was to draw attention to considerations that were based not on our perceptions or impressions but, rather, on facts, and that was key. We were also bound by the limits of our mandate. We obviously had to disregard any form of subsidization, and we had to explore options for privatization, among other things. So those were our lines in the sand, if you will.

It was pretty clear and definite, and we've respected every term of our mandate.

You've met some of the people we worked with, Ernst & Young and Oliver Wyman. They are very rigorous and have done excellent work, and we're very pleased with the collaboration we got from them. But maybe you know more about that rigour than the one we've had for other dimensions of our work.

We were rigorous in making sure that what we were to consider and to assess was not strictly the opinion of a few people. We reached out, not to do consultations as you've been doing, but to meet with stakeholders to make sure that we were really understanding the different dimensions, the different aspects, of a very complex and long history of an important institution. It was not only for the people in government or the people working in Canada Post; all Canadians are concerned and are touched by the future of Canada Post.

Let me remind you about what we've done. We have met multiple stakeholders, and every time we met one it was not one person. The stakeholders were representing their members, whether I am thinking here about the Federation of Canadian Municipalities or the association of bankers. We met the Canadian Association of Retired Persons. We met, of course, with the different unions working in Canada Post. We met with postal experts, including, of course, Robert Campbell, who had done the first study some years ago.

We were very thorough in understanding the points of view of Canada Post's clients as well as its competitors. We met with UPS and we met with the Retail Council of Canada. We felt that it was important not to hear complaints—that was not the objective of our meetings. The objective was to hear what their view of the future was. Did they have ideas of what could constitute the future of Canada Post?

But our mandate was important, also. We were asked to understand Canadian views. In order to really understand Canadian views, we had a website on which we were posting a question every week. But there was also the necessity of understanding Canadians' views scientifically. We've done an extensive survey among Canadians in all provinces, all generations, and we kind of outnumbered the younger population, the older population, handicapped people, and even native people. Altogether we surveyed 2,400 people.

We also surveyed business people separately. There, again, it was an extensive number. There were 1,200 businesses consulted. They were small and large, and from all sectors of activities.

It's important to revisit that. In the discussions you may have had, we may not have stressed those aspects of our work as importantly.

It is with all of that knowledge and suggestions that we have done our work of analysis. First, there was the analysis of assessing the financial situation of Canada Post now and in the future by making some hypotheses and forecasting the future for the next 10 years. We had to bring you the views on this despite the fact that you are doing your own consultation. Of course, you don't have time to do the kinds of numbers we had with the surveys, to give you the opinions of Canadians, the uses they have for Canada Post, and how they project they will be using Canada Post in the future.

The third dimension was that if there was a discrepancy between the financial assessment and the forecast we have and Canadians' views, what could be the options that could ensure sustainability for Canada Post?

We worked with Oliver Wyman and Ernst & Young. These are consultants who have vast and international expertise, and who even have expertise in postal services. When we worked with Oliver Wyman, there was a first bundle, I might say, of options. There were more than 40 that were, at first glance, interesting, but when we dug into them, we retained only the ones that could fit our criteria. I say this because criteria were not what could be done in a very kind of hypothetical approach, but it was a matter of having the three criteria. Considering the market dynamics, is the option viable? Considering the fit with the competencies of CPC, is it viable? Finally, is there a real potential upside? Of course, if the financial situation does not really have a pinkish tint, you want something that will bring possibilities. That's how we have reduced our options through a rigorous process and analysis.

Our conclusion, you know by now, is that the situation at Canada Post already is one in which one size doesn't fit all. That's already the case when you see how the mail is delivered across the country.

However, in the options that have been considered, there is no silver bullet. The financial situation is not about a tragedy. Rather, it's about being conscious and aware that the past cannot be prolonged. Change has to occur. Realignment has to occur. Transformation has to occur.

What we have described the interesting options. For some, if you do one, you may not be able to the other. However, they are not about solving all the issues. It's about allowing a bridge between today, the future realignment, and the transformation that we say is needed in our conclusion.

It's clear to us that there is no single recommendation that can be done strictly by one of the parties or stakeholders involved. The transformation and then thinking along the transformation and the realignment, even the kind of short-term or mid-term options, all require collaboration of all stakeholders. That will definitely be a real challenge.

We have worked every day for four months, very seriously, including travelling—not through the whole country, but from our home to Ottawa to work together—to make sure there is a future for Canada Post. It is clear to everybody, from the surveys we've done and the meetings we've had, that the future of Canada Post is important.

It's not strictly about history and the past; it's about working together to make sure there is a future.

[The Chair, Conservative, Tom Lukiwski]

Thank you very much, Madame Bertrand.

We will now go into our seven-minute round of questions.

Mr. Whalen, the floor is yours.

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

Thank you to the task force for returning to speak with us. Thank you for your report. It provided an excellent guide to start a conversation.

I found that the discussion paper was highly focused on costs rather than opportunities for revenue and the desire of Canadians for higher service. When I was listening to Canadians, I heard that they prioritized the service requirements they needed for what they wanted to expect from Canada Post, as well as opportunities for revenue growth, and that they didn't necessarily see that the cost battle was quite as dire.

We heard, over and over, from the unions that mechanisms exist in the collective agreement to help manage costs with declining mail volumes, so the corporation already has the tools it needs in its existing collective agreement to manage those costs. Yet, we didn't see, in the financial analysis presented in the discussion paper, a reflection of the fact that those labour costs would be reduced with the mail volumes. Maybe they were baked in.

My first question would be for whichever one of you worked most closely on that aspect of the financial modelling. Did you take into account the fact that labour force reductions would be allowed to be undertaken in association with the decline of mail volumes and build that into your financial analysis?

[Françoise Bertrand]

I'll let my friend Marena answer, because she is our expert in HR issues.

If you are referring to the latest terms that were negotiated, they were negotiated towards the end of our work.

What we think is more central to the analysis we've done is the average age of all the workers and the possibility to work the transformation with the decline of workers going on retirement —

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

Ms. McLaughlin, was it not taken into account because the deal wasn't done? This is helpful to know.