Evidence of meeting #9 for Transport, Infrastructure and Communities in the 41st Parliament, 2nd session. (The original version is on Parliament’s site, as are the minutes.) The winning word was business.
A video is available from Parliament.
President and Chief Executive Officer, Head Office, Canada Post
I realize these are difficult choices. I know it's going to be tough on some people. We have to find solutions to—
President and Chief Executive Officer, Head Office, Canada Post
—mammoth problems, difficult problems, and these are difficult choices.
Conservative
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Thank you, Mr. Chair.
Thank you, Mr. Chopra, for being here today.
Thank you, Mr. Chopra and Mr. Côté, for helping to explain Canada Post's five-point plan and the decision-making process that went into the development of the plan.
A couple of times you've made reference to other models around the world that you've looked at. Could you elaborate on that? Could you elaborate on what models you looked at in other countries, globally, and what lessons you took and learned from changes that other countries have made to their postal systems and how those perhaps fed into the five-point plan you've developed?
President and Chief Executive Officer, Head Office, Canada Post
One of the things we observed looking at the postal systems in Australia, in Europe, and also in the United States is that the fastest-growing category or opportunity for postal services is to participate in online commerce. This is the process of buying and ordering goods online and having them delivered. That emerged as the strongest area of growth opportunity for postal administrations. Virtually all of them are now in the process of experimenting with the concept of parcel lockers, in the case of Australia Post, or Packstation, in the case of Deutsche Post. The U.S. Postal Service is looking at similar parcel lockers. Postal administrators are looking at the two-thirds of Canada's population that has an opportunity to participate in electronic commerce in a much more convenient manner. They are looking at Canada's postal system for which we have a retail network of 6,400 locations. If you're not home, you can go to the nearest post office or, for those who are getting centralized delivery, you can walk a few yards and you can pick up your parcel securely waiting for you in a parcel locker or a community mailbox.
What we observed with all of those postal administrations was that everyone wants to invest in technology. The concept of parcel lockers is being experimented with in many jurisdictions. That was the big lesson for us: how do we invest in technologies that will allow us to deliver more of these and do so in a manner that accommodates what Canadians were telling us, i.e., that they're leading busy lives? They're not home during the day. Can we do something that is really innovative for them, that will create an opportunity for them to do more of the shopping online, and that will free up time for their family?
Those were the big lessons we learned. Virtually all other administrations are in the process of dealing with massive declines in letter mail and are struggling with similar challenges.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Thank you.
The issue of charities has come up. This is an area of interest and concern for me as it has been in my five years as a parliamentarian.
I have a couple of questions with respect to charities. I presume that when charities engage in fundraising campaigns through the mail that they take advantage of bulk rates. Is that correct?
President and Chief Executive Officer, Head Office, Canada Post
They use a product called Addressed Admail or Admail. Both of those are considered our marketing mail products. Our five-point plan announcement will have no impact on that type of mail.
Conservative
Peter Braid Conservative Kitchener—Waterloo, ON
Okay. Thank you for that clarification.
Secondly, I'm fairly certain we're seeing a phenomenon with charities that are also embracing technology. When you make an online donation, you receive an online receipt. I presume as more charities embrace technology and evolving technology, that any sorts of impacts would be mitigated or non-existent. Is that correct?
President and Chief Executive Officer, Head Office, Canada Post
In fact, the volumes from charities are down considerably over the last three years because charities are increasingly using social media and peer fundraising tactics, which obviously have a direct impact on our business. As I mentioned earlier, this is the dilemma and the difficult task of having to meet the competing needs. The very same customers for our paper business, on the one hand, are also our competitors digitally delivering mail. So digital delivery of mail is virtually being done by every one of our physical delivery customers as well.
So the world of exclusive privilege has become blurred: virtually everybody can send mail. The exclusive privilege was designed to protect the universal service, where we could afford to spread the cost to all Canadians. But when select and fewer and fewer Canadians start to use a service, then it becomes very difficult, in the absence of some structural changes, to maintain a business model that allows you to maintain your corporate mandate of being self-sufficient and not becoming a burden to taxpayers.
Conservative
The Chair Conservative Larry Miller
Thank you very much.
Our first panel is now complete. We're out of time. We have to suspend for a couple of minutes.
Mr. Chopra and Mr. Côté, I appreciate very much your being here. I wish you both a merry Christmas.
Just to keep the time moving, if we could have Mr. Stewart-Patterson, Mr. Anderson, and Mr. Lemelin take to the table as quickly as possible, we would appreciate it. Thank you.
Liberal
David McGuinty Liberal Ottawa South, ON
While we have the witnesses, if required, would Mr. Chopra and Mr. Côté be prepared to reappear in front of this committee at another time to continue their testimony and give us more ample time? I'm just putting the question through you, Mr. Chair, to the witnesses.
Conservative
Jeff Watson Conservative Essex, ON
No. On the point of order, I think the committee can discuss that. I think we have a clear mandate with respect to what we can do today.
Conservative
The Chair Conservative Larry Miller
I guess that's a question the committee can discuss among themselves. Anybody that we want to call, the committee can do that.
I think you know the rules there, Mr. McGuinty.
With that, thanks again, gentlemen.
We're going to suspend for a couple of minutes.
Conservative
The Chair Conservative Larry Miller
We are going to reconvene.
From the Conference Board of Canada, we have Mr. Stewart-Patterson; from the Canadian Centre for Policy Alternatives, Mr. John Anderson; from the Canadian Union of Postal Workers, Mr. Dennis Lemelin; and by video conference from Sackville, New Brunswick, Mr. Robert Campbell, president and vice-chancellor of Mount Allison University.
Thanks for joining us.
Mr. Stewart-Patterson, I'll turn it over to you.
David Stewart-Patterson Vice-President, Public Policy, Conference Board of Canada
Thank you, Mr. Chair. It is my pleasure to join the committee to help in its deliberations.
As I think has already been made clear by the previous witness, the Conference—
Conservative
The Chair Conservative Larry Miller
Is there a problem? Can we carry on?
Okay, we have one TV screen that's down.
Sorry about that. Carry on.
Vice-President, Public Policy, Conference Board of Canada
As I said, the Conference Board of Canada was engaged in mid-2012 by Canada Post to conduct an independent review of the strategic challenges facing the corporation, and to suggest some potential options for dealing with them. The fundamental challenge was pretty clear. Every year, the number of addresses to be served was going up. Every year the volume of mail going through the system was going down. The corporation has a mandate to remain self-sufficient. Something had to give. Our research therefore included four parts.
First, we looked at the global environment. This problem is not unique to Canadian postal services. We looked at what's happening around the world, how other countries are dealing with the same challenges.
Second, we looked at what is driving the downward trend in mail volume, a combination of econometric modelling and what's known as competitor risk assessment to project future volumes of each mail product, and the resulting impact on Canada Post's revenue and bottom line in future years.
Third, we talked to Canada Post customers to see how their attitudes and behaviours are changing. This included individual interviews with a selection of major mailers, it included focus groups and polling of small businesses, and it included polling of households.
Finally, we looked at a range of potential scenarios for change for either increasing revenues or cutting costs, ones that would be consistent with what we heard from Canadians about their evolving wants and needs. Then we projected the impact of each of those potential scenarios onto the bottom line.
Looking around the world we saw five broad approaches that other postal services are using to manage the impact of technology.
The first is liberalization and privatization. These are ways, if I may say so, to drive faster change, but they're not strategies in and of themselves. When it comes to liberalization, e-mail by itself has effectively liberalized the market for sending letters, making the postal monopoly pretty much worthless. On the other side, for privatization to be possible, there's got to be a viable business. There has to be a belief that the postal business is going to be operated in a way that can be made profitably and enable investors to make money.
The second strategy being pursued in other countries is essentially expansion into other lines of business. In many countries, post offices operate in conjunction with banking services. However, only rarely has a postal service been given a new mandate to enter the banking business, notably in the case of New Zealand.
The third strategy is the development of digital products. This is something that Canada Post is already pursuing through products like epost and Vault.
Fourth is the expansion of parcel delivery. Here too, Canada Post is making major investments already.
Finally, there are changes to prices and service standards. That was basically the focus of our report.
Across all of its product lines, Canada Post customers are basically doing their best to abandon the mail. We talked to major mailers who told us how hard they are pushing their customers to convert to electronic bills, statements, and payments. Some companies are now even charging consumers $2 a month for the privilege of receiving a single bill, which makes the price of a stamp look kind of small.
The federal government itself plans to stop mailing cheques by 2016. That will save taxpayers a lot of money, but as the owner of Canada Post, it creates a different problem for the government.
For publications like magazines, changes in the subsidy structure have already shifted their attention from sending copies through the mail to selling copies on newsstands. The trend of tablet and mobile technologies is accelerating and really affecting that product line.
Finally, the use of advertising mail is under siege from the Internet as basically it keeps gobbling up a bigger and bigger share of total ad spending.
When we started digging into what are the drivers in a quantitative way, it is true that older Canadians are more likely to remain bigger users of mail, but that in itself didn't explain the trends. The most important factor we found in the declining volume flows more from technology, how people are using technology at any age, rather than how old they are.
As I'm sure you know, the result of our quantitative analysis was a projection that if nothing changed Canada Post was heading for operating losses of around a billion dollars a year by 2020. I should emphasize that this projection was for the Canada Post segment, not the corporate group as a whole because that was the part of the business—it's the majority of the business and the part that's subject to public policy, so it excludes units like the courier business, Purolator.
What do we hear from customers? Well, let me share some of those messages.
First of all, households are sending very few letters these days. Almost half of the households we polled are sending two letters or less a month. Small businesses still depend heavily on mail, though, for sending invoices and for receiving payment. “The cheque is in the mail” still works for them.
Canada Post is actually delivering faster service than many Canadians either want or need. When speed matters to them, they are not using the mail.
The price of a stamp, which was 61¢ at the time we were doing our polling, was on reflection seen as a pretty good deal for sending a physical object from one end of the country to another.
Reliability matters more than either speed or cost. In other words what customers told us, both businesses and consumers, was that what they care most about is that on those rare occasions they do put something in the mail, they want to be confident that it's going to get to its intended recipient. They are not all that concerned about how many days it takes to get there.
What matters more and more to Canadians is the delivery of parcels, not letters. As shopping goes online, the one thing that is growing in postal volume is parcels. It is also growing in importance in terms of consumer attitudes. There is growing frustration over the fact that, because a lot of Canadians have two working adults and no one is home to receive parcels when they are delivered during the day, they have to go all the way to a post office to pick them up.
That was a summary of some of those messages.
I want to share one other thing because we also asked, “If nothing changes and Canada Post eventually ran out of money and disappeared, how would you be affected? What would you do if Canada Post weren't there?” Most Canadians felt that they would be able to replace some, but probably not all, of those services. They also told us they would expect that finding those replacement services elsewhere in the marketplace would cost them more money than they are paying through Canada Post today.
Finally, we looked at six different options for closing the financial gap. We looked at raising prices for stamps significantly. We did two scenarios, one at 5% a year and one at 10% a year and continuing year after year. We looked at wage restraint. We looked at alternate-day delivery. We looked at elimination of delivery to the door. We looked at further conversion of corporate outlets to franchises and we looked at reductions of service standards, slowing down the mail if you want.
We did see room for Canada Post to raise prices but our model suggested no realistic scenario for getting to break-even on price increases alone. In order to balance the books without price increases and without cutting the number of jobs, Canada Post could restrain wages but effectively it would have to freeze wages indefinitely. We saw that scenario as not realistic. It just illustrates the scale of the problem.
Alternate-day delivery offered some significant savings. Most households said they wouldn't mind that much. But business customers, especially those sending products like flyers that have to arrive on specific days of the week, said they would object strongly.
Eliminating delivery to the door offered the biggest cost savings of all the options we looked at. It would affect only one-third of Canadian customers.
Vice-President, Public Policy, Conference Board of Canada
I'm wrapping up.
It would offer more convenience for parcels.
Other options didn't have as big an impact and, basically in summary, Canadians said, “We still value having a postal service, it still matters to us”. But what they expect and what they need is changing. Financially sustaining a postal service that was going to meet those evolving needs was not going to be done by any one measure; it was going to require a combination.
Mr. Chair, that summarizes our report.
Conservative
Denis Lemelin National President, Canadian Union of Postal Workers
I will speak in French.
Mr. Chair, I would like to thank you for giving me the opportunity to present the views of the Canadian Union of Postal Workers, or CUPW. We represent the thousands of letter carriers who, every day of the week, provide door-to-door mail delivery to millions of people, a service that the government wants to eliminate.
First of all, I would like to say that we are completely opposed to the elimination of door-to-door delivery and that we will mobilize Canadians to fight this unnecessary elimination of an important service. In the next few months, we are going to work with the owners of the Canada Post Corporation, that is to say Canadians, to convince the government to reverse this decision. We are going to work with the millions of Canadians who have home delivery. We are going to work with community organizations, our allies in the labour movement, seniors and people with reduced mobility, and the organizations that represent them. We are going to work with small businesses and home-based businesses. We are going to work with everyone who cares about their postal service to convince the government to reverse this very bad decision.
In our opinion, not only is this a bad decision, but the decision-making process was terribly flawed. You have to wonder why the rush to announce this decision before Christmas. Why not wait until the Canadian Postal Service Charter review scheduled for 2014? If that was too long to wait, why did they not have the review in 2013? Furthermore, why not wait for the 2013 financial results? What was the rush? Was it because the government is worried that Canada Post's financial situation will improve and that it will not be able to justify this announcement, or is it afraid of a major public debate on postal service?
We are also concerned about how the government and Canada Post senior management tried to justify these cuts. We have been told repeatedly that two-thirds of Canadians already have their mail delivered to community mailboxes and that the announced changes are not a problem. The problem is that this is false. Just look at the 2012 Canada Post annual report.
Canada Post delivers mail to 15 million addresses. Of these residents, 25% have their mail delivered to a mailbox in the entrance of their building. They do not have to go outside to a community mailbox. Furthermore, 35% of households have home delivery, 5% have their mail delivered to a rural mailbox located at the end of their laneway, and 12% of households receive their mail at a postal box or have general delivery. Only 25% of Canadians receive their mail through a community mailbox, grouped mailbox or a kiosk.
Let us be clear. All these people knew that they would have that kind of service when they decided to move to those addresses. If the government's plan moves forward, the number of people who will have to walk or drive to get their mail will increase by 132%. The government is trying to change the rules for more than one-third of the population without consulting them and without their consent. Canada Post belongs to all those people. That is no way to treat people, especially the many people who will have difficulty walking to their community mailbox to get their mail or who will even find it impossible to get there.
Many excuses have been given to justify the cuts. There have been many statements by Canada Post management and the government about the solvency deficit of Canada Post Corporation's pension plan. Yet, not once did they say that the plan has a surplus on a going-concern basis. Now that the government has given Canada Post a four-year reprieve from solvency payments, we will see if in that time the long-term interest rates return to their historical average. If they do, the solvency deficit will no longer be an issue.
It is important for the government to know that CUPW and Canada Post are currently holding discussions on the pension plan and that it was CUPW that suggested establishing a joint task force to examine the pension. No matter what happens to interest rates, CUPW will assume its responsibilities and deal with this matter.
I'll switch to English.
In the discussion of these cutbacks, we have heard lots about the estimates of the Conference Board, in a report paid for by Canada Post, that CPC would lose $1 billion in 2020.
I would like to ask all of you if you have read this report. If you have you will see that the Conference Board based the 2020 estimates on the assumption that CPC would lose $250 million in 2012. Were they correct? No. CPC actually made $94 million in 2012. If the Conference Board can be so wrong about 2012 what makes anyone confident they are right about 2020?
We have also heard a lot about the current financial situation of Canada Post and the decline in the volume of letters. Yet, we hear very little of the fact that Canada Post made more than $90 million in profits last year, and hundreds of millions of profit in 2010 and 2009. In fact, the only year Canada Post lost money was the year they had to pay hundreds of millions of dollars for a 10-year old pay-equity settlement. Also, that year they shut down the post offices for two weeks when they locked out postal workers. With the exception of those years, CPC has been profitable in every year since 1995. During the years of profitability CPC returned over $1.5 billion to the federal government in the form of dividends and income taxes.
This year we do not know what will happen. We hear CPC talking about record parcel volumes, but we know there is also a decline in the volume of letters.
We accept the fact that things are changing. However, we cannot understand why Canada Post will not follow the example of post offices in the U.K., France, Italy, Switzerland, and the many other countries that are currently either beginning a banking service or expanding their existing services.
Today we have thousands of communities with a post office but no bank. We have hundreds of thousands of citizens without bank accounts. Why is it that the management of all of these other postal administrations have had the imagination to expand their financial services and ours do nothing? We need innovation, not excuses for failure.
In closing, I want to repeat our promise that CUPW will do everything possible to stop these cutbacks. This is not the first time a Conservative government has tried to destroy postal services. In 1988 the Conservative government of Brian Mulroney announced that it would privatize and close every post office except 11. We fought against that for four years. We organized and walked with the people in every region, and eventually the Conservatives were defeated and the Liberal government introduced a moratorium on rural postal closures. It is because of our organization that we still have thousands of post offices open to serve the population.
Today, we have a new challenge. Once again, our union will commit itself to preserving the public postal services.