Indigenous and Northern Affairs Committee on Nov. 3rd, 2010

[Andy Morrison]

Actually, we're not allowed to claim to the air carrier that is contracted by Canada Post to carry that product. We ship—

[Larry Bagnell, Liberal, Yukon, YT]

You pay Canada Post to ship something. Are they not responsible when they ship freight for people in Canada?

[Andy Morrison]

One would assume, but that's not the case under the food mail program. It is different on our traditional air cargo. We do file claims for quality issues, but we can't do it on the food mail program.

[Larry Bagnell, Liberal, Yukon, YT]

That seems like a bizarre rule in the existing program.

Related to the costs of shipping, someone—I can't remember who, but it might have been Eric or Scott—said that in the old system there was a level playing field at least. Canada Post has the deal and does all the shipping. I assume, because of that huge buying power, it has a good rate. A number of you said that the smaller companies are going to have a hard problem now because, obviously, they can't compete with that massive volume. But no matter what, everyone is going to have a smaller amount than Canada Post had in the past.

So how can the shipping rates not be higher for some people and, in fact, for everybody? As someone said, there's no level playing field any more. It's everyone for himself.

[Scott Bateman]

I think that might have been somebody else's comment.

These are all my customers. We'll negotiate a value proposition with each of them that allows us to maintain the majority of the food mail.

[Larry Bagnell, Liberal, Yukon, YT]

But normally, as an airline, if you have a person ordering one box and another constantly giving you a hundred boxes, I assume you have a slightly lower rate for the latter. I mean, that's business.

[Scott Bateman]

The principle is the same. But generally speaking, your larger-volume customers get the benefit of a volume discount, for sure.

[Larry Bagnell, Liberal, Yukon, YT]

So in theory you could actually make more money; I don't want to stop you from making more money. But if Canada Post has this huge buying power, I assume it would negotiate a good rate with you. Then everyone, even the small retailers whom people want to buy from, has access to that good rate because it goes through Canada Post.

[Scott Bateman]

That was a benefit of the program, because they bundled their buying power and everybody benefited from a flat rate.

[Larry Bagnell, Liberal, Yukon, YT]

Go ahead, Andy.

[Andy Morrison]

A further point is that for retailers in the north, food mail is not the only method we use for shipping product. We have general cargo where we negotiate contracts right across the north with airlines. We're not able to pool our buying power from our general cargo with our food mail, or our perishable type of products. So if we're able to pull together our perishable product and our non-perishable product that's not eligible and has never been eligible, we expect to negotiate better rates.

Also, under the proposed new program, we will eliminate any specific charges that Canada Post levies per case. We will eliminate all of the costs of sorting. For example, we hire companies to sort and label the product so that Canada Post can inspect it.

But one other really important point in terms of a level playing field is that there's not a level playing field in the current program. The rates for perishable nutritious products are the same all across Canada, but for the non-perishable products, what's known as food mail “B” and food mail “C”, the provinces have a rate of $1.00 a kilo and the territories have a rate of $2.15 a kilo. So we don't have a level playing field now. The proposed new program is expected to level that playing field.

[Larry Bagnell, Liberal, Yukon, YT]

But all of the retailers who are going to the same location have a level playing field now. Henceforth, they could have 30 different rates. One of the people at the last committee meeting said there wasn't a single retailer signed up in his area.

One other thing is the shortening of the supply chain. If someone goes to a city and buys some stuff and takes it to Canada Post and then sends it to their community, it's pretty short. Now they have to go to a retailer who happens to be signed up, the retailer then has to make some arrangements for shipping and send it. It isn't clear to me how that's any faster or a shorter supply chain.

[The Chair, Conservative, Bruce Stanton]

We have about 20 seconds left, if someone wants to take a chance and respond to that.

Mr. Morrison, go ahead.

[Andy Morrison]

Currently, to use an example of product travelling out of Yellowknife to areas farther north, we truck product out of Yellowknife. It takes 24 hours to arrive in Yellowknife. The product generally sits for a day in Yellowknife to complete the sorting process. The contracted carriers of Canada Post then have 72 hours to deliver the product. So we're talking about it taking four or five days in many cases before product even hits shelves in a community. Eliminating that process with Canada Post will greatly improve the process. We can shorten that process by days—and days for perishable products are essential.

[The Chair, Conservative, Bruce Stanton]

Thank you, Mr. Bagnell.

Mr. Lévesque, you have seven minutes. You will be followed by Mrs. Crowder.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Thank you, Mr. Chairman.

I would like first to find out more about the basis of the program. So my question will be for Mr. Bateman or Mr. Thompson.

Firstly, as an air carrier, could you explain rather briefly to me how you get the transportation contracts subsidized by Canada Post? How do you get those contracts and for what duration ?

[Scott Bateman]

Historically, the way the process works is that the administrator of Canada Post comes out with a request for proposals by the carriers operating in the regions. It generally identifies the volume of the different products to be tendered at the different entry points, and all of the carriers make a proposal, give their unit price per kilo, and present their value proposition to Canada Post. They take those different submissions and choose the best value proposition for them. Thereafter, you typically enter into a contract for a fixed term of three to five years.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

If I understand correctly, until now, each year in which you have obtained a contract, you have submitted a bid and your freight rate per kilogram was the lowest of all. A yes or a no will suffice.

[Scott Bateman]

I would suggest that the value proposition is a combination of service, capability, and price.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

In the present situation, what are the requirements, the specifications of Canada Post? What does it include when a request for proposals is made to several companies? I think that there are at least three bidders. There are specifications describing what must be included and what are the responsibilities of the carrier. Could you explain to us what those requirements are?

[Scott Bateman]

Generally the requirements of the RFP, as I think Andy and the others alluded to, include our having to show a capability of moving food mail product from origin to destination in a pre-determined time. We also have to show the ability to self-measure our performance and to report back to Canada Post against our contractual obligations on a monthly basis.

For perishable food product, from the time it enters our system, we have 48 hours to get it to its final destination. For the non-perishable product, we have 72 hours from the time it gets into our system to get it to its final destination.

So those are the basic service standards.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

You have a contract presently in force, but you are not servicing the whole country. Your contract covers a specific territory. Other carriers are servicing other regions. They must respect service standards similar to yours to meet the requirements particular to their area, isn’t that right?

[Scott Bateman]

I can't speak to the other contracts. I can only speak to the service standards in the markets we serve. I'm not familiar with the other regions of the country.

[Yvon Lévesque, Bloc, Abitibi—Baie-James—Nunavik—Eeyou, QC]

Could you tell us how many air carriers there are for the other regions of Canada, aside from you, of course?

[Bill Thompson, Vice-President, Commercial Operations, First Air]

There is one in Labrador, one in Nunavik, one in Northern Ontario, one in the Northwest Territories, in the Norman Wells area, and one in Northern Manitoba. There are maybe seven or eight air carriers for the whole country.