Canada Post Faces Billion-Dollar Operating Loss by 2020

OTTAWA, April 23, 2013 /CNW/ - Technology is having a dramatic impact on how Canadians use postal services, and the resulting decline in mail volume is projected to push Canada Post to an annual operating loss of $1 billion by 2020.

A Conference Board of Canada report, The Future of Postal Service in Canada, looks at how the needs and expectations of Canadian households and businesses are evolving, and assesses a range of options that could enable Canada's postal service to remain self-sustaining in the digital age.

"Canadians recognize that the way they use mail is changing, but haven't yet fully understood how severely that is affecting Canada Post's business model," said David Stewart-Patterson, Vice-President, Public Policy.

"E-commerce is boosting demand for parcel delivery, but households are sending fewer letters, businesses are encouraging electronic bills, governments are moving to direct deposit, and advertising is moving to the Internet. Canadians must consider what kind of postal service they really need in the years ahead."

HIGHLIGHTS

  • Almost half of all Canadian households send no more than two pieces of mail through the postal system each month.
  • Canada Post appears to be delivering a standard of service higher than customers now expect or need.
  • The growth of e-commerce is driving up demand for parcel delivery.
  • Eliminating delivery to the door for urban residential customers would be the option with the largest financial impact, followed by alternate day delivery.

The Conference Board study estimates that Canada Post's transaction mail, addressed and unaddressed advertising mail, and publication volumes will decline by more than 25 per cent by 2020. The Canadian experience is not unique - postal services around the world are being forced to deal with the same pressures on traditional mail volumes.

Parcel volume in Canada is expected to buck the downward trend and increase by 26 per cent by 2020, due in part to the growth in e-commerce. But this growth will not make up for the corresponding loss in revenue from other lines of business.

Canada Post managed a modest profit in 2012 but that will likely be temporary. While the corporation's Postal Transformation initiative will have a significant impact on its bottom line by boosting productivity and improving efficiency, the Conference Board projects an annual operating loss that will reach about $1 billion by 2020.

No single change to prices or service standards will be sufficient to enable self-sustainability as mail volumes continue to decline. Canada Post could reduce its projected losses significantly by raising prices faster than inflation, but it cannot realistically return to self-sustainability through price increases alone.

The report examined five options for cutting costs: wage restraint; alternate-day delivery for mail (but not parcels); converting Canadian households door-to-door delivery to community mail boxes; further replacement of corporate post offices with franchised postal outlets; and reduced speed of delivery.

Eliminating delivery to the door for urban residential customers would be the option with the largest financial impact, saving a projected $576 million a year. Door-to-door delivery is still the largest single category of delivery method, but two-thirds of Canadian households are now served by delivery to centralized points, group mailboxes, delivery facilities, and rural mailboxes.

Canada Post commissioned The Conference Board of Canada to conduct an independent assessment of the future of postal service in Canada, and to consider potential paths forward.

The report is publicly available at www.e-library.ca.

 

SOURCE Conference Board of Canada



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