How Canada Post might cope with halt to community mailbox program
James Bagnall, Ottawa Citizen
Published on: October 27, 2015 | Last Updated: October 27, 2015 5:08 PM EDT
We will stop Stephen Harper’s plan to end door-to-door mail delivery in Canada and undertake a new review of Canada Post to make sure that it provides high-quality service at a reasonable price to Canadians, no matter where they live. – The Liberal Party election promise.
Canada Post president Deepak Chopra knew this was a possibility – that a Liberal government would arrive midway through his plan to keep the Crown Corporation on a profitable track through to 2019.
Early this week, well before the swearing-in of Justin Trudeau as prime minister set for Nov. 4, Chopra announced Canada Post would halt plans to terminate door-to-door delivery to the one in three Canadians who still receive their mail this way.
Chopra did so knowing full well what the move would cost. That’s how it is when you’re running a government-owned operation. (Chopra’s initial five-year contract had been due to expire Jan. 31, 2016, but the Conservatives renewed it last August, effective Feb. 1.)
The question is: How will Canada Post make up the lost potential savings? The Liberals promised a “new review” of the Crown corporation’s operations but this appears to be little more than temporary political cover.
After all, the problems at Canada Post have been studied endlessly and are well-known. The company adds more than 150,000 new addresses annually as new residences and businesses are built, but delivers fewer pieces of mail to each recipient as Internet banking and email take over. The result: the cost to deliver each piece of mail is rising inexorably.
Two years ago, Canada Post launched its most recent plan, which contained a five-part strategy for keeping the corporation (barely) profitable. The core element was the shift away from door-to-door delivery (which costs $289 per year for each address) to community mailboxes ($111 annually per address).
An estimated 4.2 million Canadians still enjoy door-to-door delivery, or roughly 27 per cent of the total, compared to five million who get their mail through community boxes, or 32 per cent. (The remainder receive mail through work, rural routes, apartment blocks or a post office.) Canada Post reckons it could eventually save $750 million annually, assuming full conversion to community mailboxes.
That’s a very big number for a corporation that averaged paper-thin profits of just $3 million per year from 2011 to 2014 on annual revenues of nearly $8 billion.
The question is, how will Chopra make up the potential savings the Liberals have effectively stripped away?
Some clues can be found in the remaining four points of his 2013 plan to put the corporation on more solid financial footing. Unfortunately, none offers the kind of robust savings of the community mailbox program. The four other strategies include:
- Raising prices. While Canada Post has been free to raise stamp prices in line with inflation since 2010, more aggressive hikes risk exacerbating the trend towards email and other forms of electronic communication.
- Increasing the number of franchises. This process is already well underway, with many urban areas well served. Nevertheless, the potential for increasing revenues through heightened convenience is there.
- Streamlining operations. The company is automating many aspects of mail processing but it could also realize significant savings by consolidating its 21 mail processing plants, as Ian Lee, assistant professor at the Sprott School of Business at Carleton University, pointed out in a recent report for the Macdonald-Laurier Institute.
- Reducing labour costs. Obviously this is not a popular option for Canada Post’s heavily unionized workforce. The Crown corporation predicts 15,000 of its 65,000 workers will retire by 2019 – and perhaps half of these will not be replaced.
These options – even when combined – aren’t expected to generate enough savings on their own to keep Canada Post profitable. Which leaves a separate possibility for the incoming Liberal administration: it could deal with increased deficits by forking over the money directly from general tax revenues. Whether that would be seen in the same light as the Liberals’ promised infrastructure investments is simply unknown.
Email:
jbagnall@ottawacitizen.com
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