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Canada Post's losses mount amid 'huge challenges'

Canada Post CEO Deepak Chopra blamed the now-chronic losses at the Crown Corporation on the “costly obligation” to deliver mail to every Canadian address.

DAVE CHAN/The Globe and Mail

For many businesses, a monopoly would be a licence to print money.

But the "costly obligation" to deliver mail to every Canadian address is threatening Canada Post's financial viability, chief executive Deepak Chopra warned as the Crown Corporation reported an operating loss of $193-million for 2013 on Monday – a third straight year of red ink.

The decline follows operating losses of $106-million in 2012 and $226-million in 2011 for Canada Post Group, which includes courier subsidiary Purolator Holdings Ltd. Excluding profits at Purolator, the 2013 loss was even larger at $269-million. Revenue grew a meagre 0.4 per cent to $7.6-billion.

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Canada Post officials insist preliminary results show a controversial overhaul of the postal service announced in December is helping counter a relentless decline in mail volume. Changes include a steep stamp price hike, the end of home delivery for millions of Canadians and up to 8,000 job cuts.

"Obviously, there are huge challenges, but we're optimistic about the future," spokesman Jon Hamilton said. "The early results are good. It's turning in the right direction."

Canada Post hiked the price of a stamp (in a book of at least 10) by 35 per cent to 85 cents at the end of March. Individual stamp prices increased to $1. In the fall, the corporation will begin to convert 5.1 million homes to community mailboxes, including parts of suburban Toronto, Calgary and Ottawa.

Mr. Hamilton said the full revenue impact of the stamp price increase won't show up until second quarter results are released later this year. But "things have remained steady," he said.

In comments contained in Canada Post's annual report, Mr. Chopra said its mail monopoly isn't generating enough revenue to fulfill the obligation to deliver mail to everyone across a sparsely populated country.

"This arrangement has fallen out of balance as households and businesses have moved away from mail as a primary source of communication," Mr. Chopra said.

"Less mail equals less revenue, while the costs of providing service are largely fixed."

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Canada Post has estimated that its restructuring will boost revenues or cut costs by a total of $700-million to $900-million a year by 2018. The end of home delivery will have the greatest impact, eventually saving up to $500-million a year. Home delivery costs Canada Post twice as much as community mailbox service.

The federal government also granted the post office a four-year reprieve on making special payments into its pension plan – payments that would have swelled Canada Post's losses this year and beyond. The pension plan had a solvency deficit of $6.3-billion at the end of 2013.

Canada Post is gradually transforming itself from a letter delivery company that ships parcels on the side to a parcel company that also carries letters.

"This isn't simply about reducing costs," said Canada Post's Mr. Hamilton. "It's about transforming the company to be relevant to a whole new generation of Canadians."

Canada Post's big bet on parcels is starting to pay off, but not fast enough to make up for a steady decline in its core business of delivering letters. In 2013, revenue from parcels grew 7.2 per cent as the company delivered 5 million more packages.

Letter volume, which still makes up roughly half of Canada Post's revenues, fell by 230 million pieces from 2012, or 5.3 per cent. Direct marketing revenues were also down.

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Canada Post delivered 1.2 billion fewer letters in 2013 than it did in 2006 – a shift that Mr. Chopra called "historic."

In a statement, Canadian Union of Postal Workers president Denis Lemelin accused Mr. Chopra and his management team of "engaging in a planned demolition of public postal service" by driving away customers with poorer service.

Mr. Chopra, on the other hand, called his restructuring plan "bold and realistic."

Last year's net loss was $29-million, compared with $83-million in 2012 – the result of one-time sales of real estate, including its downtown Vancouver mail processing centre.

Editor's Note: Canada Post delivered 1.2 billion fewer letters in 2013 than it did in 2006. An earlier version of this article contained an incorrect year.

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More


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