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Canada Post suggests delivery cuts would solve cash crunch

Canada Post workers sort mail in Mississauga, Ont. The federal Crown corporation warned ominously Tuesday that it will likely run out of money by next summer if it continues on its current path. ‘We have a 19th century business model that we have to pull into the 21st century,’ Canada Post spokesman Jon Hamilton said.

Fernando Morales/The Globe and Mail

Canada Post has long had a troubled business model as Canadians continue to shun conventional mail in favour of e-mail, social networks and other forms of digital communication.

Now it's also grappling with a serious cash crunch.

The federal Crown corporation warned ominously Tuesday that it will likely run out of money by next summer if it continues on its current path. "We have a 19th century business model that we have to pull into the 21st century," Canada Post spokesman Jon Hamilton said.

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Canada Post said it is in talks with the federal government about securing unspecified "additional financing." It's also appealing to regulators for some relief from the source of one of its biggest financial problems: a large, and underfunded, employee pension plan. The company has a $1.1-billion payment due in 2014 to cover a massive solvency deficit in the fund – nearly $6-billion at the end of 2012.

The company said its cash woes would "increase rapidly" in the second half of next year.

Longer term, Canada Post is floating several cost-cutting measure that could prove distasteful to many Canadians, including moving to every-other-day mail delivery, shifting people from home delivery to community mailboxes, closing more post offices and raising postal rates.

Those options were contained in a recent Conference Board of Canada report, commissioned by the post office.

The report concluded that without a shift in course, Canada Post will be losing $1-billion a year by 2020.

Canada Post is essentially prepping Canadians, and the government, for a significantly slimmed down post office, suggested Robert Campbell, president of Mount Allison University in Sackville, N.B., and chairman of a 2008 federal advisory committee on the Crown corporation.

"Canada Post is in the process of trying to get government support for a changed level of service that would be the new standard," Mr. Campbell said.

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Experts and Canada Post officials acknowledge that turning to the government for subsidies probably isn't in the cards. So a sharp reduction in services is inevitable.

"The government and Canada Post each need some help in getting to a point where Canadians would accept something that 10 or 15 years ago would have been beyond the realm of imagination," Mr. Campbell said. "Canada Post needs the government to support them in rejigging what's expected of a postal service."

The Canada Post group of companies, which includes courier service Purolator Holdings Ltd., lost $76-million in the second quarter ending in June, down slightly from a loss of $80-million in the same quarter last year. Canada Post has now lost money in six of the past eight quarters.

The pre-tax quarterly loss in its core postal business was even larger at $104-million – a loss the company blamed on a 6.3 per cent decline in so-called "transaction mail." That includes letters, bills and various statements.

Under the current business, there simply isn't enough profit to "support its operations," Canada Post pointed out in its quarterly report.

The company, under newly installed chief executive Deepak Chopra, has already made major changes to pare costs, including a new contract last year with the Canadian Union of Postal Workers that pays new hires less and curtails sick pay and pension benefits. It has also tried to get savings by consolidating mail processing and sorting.

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Canada Post has seen revenue gains in its parcel business as more Canadians shop online. Parcel shipments rose 5.1 per cent in the second quarter. Advertising mail has been flat – a phenomenon that Canada Post blamed on the slow economy and competition from online advertising.

Growing parcel revenue has not been sufficient to compensate for dwindling mail volumes, which generate half of the company's revenue. In the first two quarters of this year, Canadians sent 111-million fewer pieces of mail than a year earlier, a decline of 4.1 per cent from the same period last year.

On top of the substantial legacy costs linked to its large unionized workforce, Canada Post is saddled with the extra burden of providing universal mail service. That means service to every residential and business address in the country – addresses that grow in number every year, even as mail volume shrinks.

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