Skip to main content

In Canada Post Corp. president Deepak Chopra's world, the parcel business is like American Pharoah, winner of the Kentucky Derby and Preakness Stakes.

Delivering your cable bill or letters from grandma, on the other hand, is more like Upstart, the horse that finished dead last in the Derby.

"You have to place your bets on horses that can win," Mr. Chopra said as he defended the controversial decision to end home mail delivery at the Crown corporation's annual meeting last week.

And the parcel business, he insisted, is a "winning horse," while letter mail is in "epic decline."

A year and a half after Canada Post announced its plan to become financially viable, Mr. Chopra is making it clear that Canada Post's fortunes are now inexorably tied to parcels.

The big question is whether Mr. Chopra can generate enough revenue in the expanding world of e-commerce to offset the demise of mail, its main business.

Delivering letters makes up more than half of the post office's revenue ($3.2-billion in 2014). But volumes are in steady, and perhaps accelerating, decline. In the first three months of this year, letter volume dropped 8 per cent from the same period last year. Canada Post is delivering 1.4 billion fewer pieces of mail a year now than it did in 2006, a near 30-per-cent decline.

The post office is withering, and we are all to blame, according to Mr. Chopra.

"Canadians have quietly walked away from their end of the unwritten social contract with the post office," he said. "They have digital lifestyles."

If the 8-per-cent pace of mail volume decline holds for the year, another $250-million in revenue will vanish, likely forever.

The parcel business is growing, as more Canadians shop online. That business generated revenue of $1.5-billion last year for Canada Post, or 24 per cent of its revenue. That trend continued in the first quarter, with volumes and revenue each up by more than 6 per cent from last year.

Canada Post has a commanding market share in home shopping, delivering two out of every three items Canadians buy online.

But Mr. Chopra warned that unlike mail, in which it has a monopoly, the parcel business is cutthroat, and competition "comes at us from all sides." He cited new rivals such as Uber, which is getting into the delivery business, and Inc., which is testing parcel delivery via drones.

The trouble with the postal system is similar to the newspaper industry. The Internet has made information essentially free, forcing newspapers to make up for declining print advertising with online revenue and digital subscriptions.

For now, Canada Post is offsetting the demise of its main business with rate hikes for letters and cost-cutting. And the biggest cost savings come from ending home delivery. That helped the Crown corporation generate a small profit in the first quarter. Canada Post intends to eventually stop door-to-door delivery to 5.1 million households, saving as much as $500-million a year.

The other problem for Canada Post is a large solvency deficit in its pension plan – $6.8-billion at the end of 2014. The company has 10,000 fewer contributors than retirees. And the mismatch is widening as its workforce shrinks, exacerbating the plan's shaky finances.

Canada Post isn't generating enough cash to significantly narrow the pension hole, no matter how many parcels it delivers.

Mr. Chopra isn't saying so, but the numbers suggest Canada Post can't be both financially self-sustaining, as its charter requires, and meet its pension obligations.

His "bet" on the low-margin parcel business makes a good story line. But even under the most optimistic of scenarios, it's hard to see how e-commerce will generate all the cash the post office needs.

The opposition isn't offering realistic solutions. The NDP says it would reverse the end to home delivery if the party wins the next election. The Liberals want a moratorium on moving more homes to community mail boxes.

Neither side is living in the real world. Canada Post is facing an existential threat. Canadians will either have to pay a lot more, through postal rates and higher taxes, or get used to even less service.

And Mr. Chopra's bid for the Triple Crown is just that – a bet on a horse.

Follow Barrie McKenna on Twitter: @barriemckennaOpens in a new window

Report an error

Editorial code of conduct

Tickers mentioned in this story

Interact with The Globe