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What started out as a side business from book store postal deliveries has become a postal delivery type service for owner Derek Nolan. (Fred Lum/The Globe and Mail)
What started out as a side business from book store postal deliveries has become a postal delivery type service for owner Derek Nolan. (Fred Lum/The Globe and Mail)

Who's eating Canada Post's lunch: The intricate delivery route of Canadian packages Add to ...

Online bookseller Derek Nolan used to make an occasional 90-minute drive from Toronto to a post office in Niagara Falls, N.Y., where he would mail packages to U.S. customers to save the fees charged by Canada Post.

His little green Suzuki gradually became fuller – and the trips more frequent – as other small booksellers turned to him to save postage costs and reach the massive American market. “People would say to me: ‘Are you going down? Can you take my stuff down?’” Mr. Nolan said.

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That was 13 years ago. When Mr. Nolan makes the trip these days, it’s in a cube van or one of three parcel trucks stuffed with boxes destined for American – and some Canadian – buyers. His company, Chit Chat Books, has evolved into Chit Chats Express, a courier business with two Toronto-area warehouses that helps small online sellers reach international markets by skipping Canada Post’s more expensive parcel service. In December, Mr. Nolan’s company took about 200,000 packages over the border, up from 25,000 two years ago.

“Our business grew out of my necessity to get mail to the post office,” said Mr. Nolan, who charges 65 cents a package for the service. His customers include candle makers, craftspeople and sellers of collectibles with a value of less than $200.

North American consumers are spending more of their money online than ever, giving a boost to package-delivery companies, from giants FedEx Corp. and United Parcel Service Inc. to entrepreneurs like Mr. Nolan with his four trucks. The competitiveness of those services also represents a challenge for Canada Post Corp., which hopes to rely more on its parcel delivery service for profit as letter mail declines.

The federal Crown corporation said this month it would phase out home delivery and shed as many as 8,000 jobs in an attempt to save $700-million to $900-million a year and get a handle on its massive pension deficit. Package delivery is one of the few bright spots. Parcels are the fastest-growing line of service in the core Canada Post business, growing 6.2 per cent to $952-million in revenue in the first nine months of the fiscal year.

Canada Post also owns 91 per cent of courier company Purolator Inc., which earned $29-million before tax in the first nine months of the fiscal year, compared to a $165-million pretax loss at the core Canada Post unit.

“When it comes to moving items from Canada to the U.S., it’s an incredibly competitive market, whether it’s with large global companies or freight forwarders,” said Anick Losier, a spokeswoman for Canada Post.

But smaller courier companies such as Mr. Nolan’s that handle packages destined for the United States are thriving, as businesses try to sidestep Canada Post and cut their shipping costs.

Toronto resident Felix Wong, who sells engraved smartphone cases online for $15 to $50, says bypassing Canada Post with couriers such as Chit Chats is the only way he can make money on some items sold to U.S. customers.

It costs him about $2.85 to ship one of his smartphone cases from Toronto to a U.S. customer, including the 65 cents charged by Chit Chats. If he were to ship using Canada Post, he figures it would cost him about $8. Mr. Wong uses Canada Post to reach domestic customers, but most of his customers are in the United States.

Some Canadian online sellers even ship into Canada from the United States. Their boxes follow a circuitous route: Into the hands of a courier in Ontario, over the U.S. border and into the U.S. Postal Service, back over the border and into the hands of Canada Post, which delivers it to the buyer. Yet that is, in some cases, cheaper than paying Canada Post to handle it alone.

Mr. Nolan says he has a few Canadian customers who ship back into Canada via the U.S., but it takes longer and he doesn’t recommend it.

One Ontario online seller, who spoke on condition of anonymity, said the savings are substantial, particularly for goods travelling across Canada or to rural areas. The man, who sells small sporting goods items on eBay and Kijiji, said he saves about $6 on a package destined for another province by shipping back into Canada from the United States.

There are no borders on the Internet, the saying goes, but Canadians who sell to international buyers on eBay or though their own websites disagree. They face physical and financial hurdles – borders, customs fees, delays, currency conversion charges from banks and shipping costs to reach U.S. buyers. Americans like to buy from Americans, in their own currency. And they like fixed mailing rates, offered by U.S. Postal Service but not Canada Post, which charges by distance for packages.

So some online vendors, such as bookseller Brian Harling, use a U.S. postal address and advertise items in U.S. dollars.

Mr. Harling, whose Toronto shop is called kbooks, pays a flat rate of $2.80 (U.S.) through the U.S. post office to reach buyers anywhere in the United States, on top of the fee charged by Chit Chats to cross the border. Canada Post would charge $13 (Canadian) to reach California or $8 to New York, often more than the price of a book, he said.

“The savings for us are phenomenal. Not only the savings but it actually means we can sell in the United States” without losing money, he said.

Peter Smith is the owner of Daneson, which bills itself as a “purveyor of fine flavored toothpicks” that cost about $20 (U.S.) for 48.

The toothpicks are made in Oakville, Ont., and shipped to New Jersey, where they are packaged for sale. He says Canada Post charges $13.20 (Canadian) to mail a pack of toothpicks – about the size of a deck of cards – to Vancouver from Toronto. Meanwhile, the same shipment via U.S. postal starting in New Jersey costs $7.35 (U.S.).

Mr. Smith has a long list of grievances about Canada Post’s parcel service, including its lack of a first-class flat-rate service, and use of non-standard letter-mail dimensions.

“A Canadian e-retailer who uses Canada Post has to take every parcel to the post office and process each shipment one by one. I’ve done this and it’s purgatory. Then consider the additional pain of having to re-invoice customers for postage,” he said.

Canada Post said its plan to become profitable does not include higher rates for parcel delivery. But Alan Middleton, a marketing professor at York University’s Schulich School of Business, predicts businesses will begin to find ways to skirt Canada Post for letter mail when the carrier raises stamp prices in March to 85 cents (Canadian) from 63 cents.

Chit Chats’ Mr. Nolan agrees and says his volumes doubled after the 2011 lockout at Canada Post, and have doubled again since.

“Every time they raise rates they shoot themselves in the foot,” he says. “Maybe I’m wrong. Maybe my business sense isn’t as good as I think it is, but I think Canada Post is moving in the wrong direction.”

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