Canada Post to face $1B loss by 2020

Falling mail volumes will result in Canada Post losing a billion dollars a year by 2020, the Conference Board of Canada said Tuesday in a report that suggests some controversial ways the Crown corporation could address the problem.

The Conference Board report, which was commissioned by Canada Post,estimates that the postal system's total volume of mail will drop by more than 25 per cent within the next seven years.Only parcel volume is expected to rise as e-commerce continues to grow in popularity. But the report says the growth in parcel business will not make up for theloss in revenue from other lines of business.

Almost half of all Canadian households send no more than two pieces of maileach month, the report notes.

"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," says David Stewart-Patterson, the report's lead author and the board's vice-president of public policy.

"Canadians must consider what kind of postal service they really need in the years ahead."

The ConferenceBoard notes that Canada Post recorded profits for 16 consecutive yearsuntil2011's deficit by improving efficiency and bringing in regular price increases at or below the rate of inflation.Those days of black ink are over, it says.

Canada Postlast week saiditwas facing "serious financial challenges" this year because ofa growing number of new addresses along with rapidly declining mail volumes. The corporationsaidit is expecting a "substantial financial loss in 2013."

It's a scenario facingpostal systems around the world. Last week, the U.S. Postal Service reported an annual loss of$15.9 billionUS. Ithad proposed droppingSaturday delivery but abandoned that plan following Congressional opposition.

Raising the cost of mailing letters and advertising could help to cut Canada Post's future shortfall, the report says, but it won't eliminate it. Even boostingmail costs by10 per cent a year starting in 2014 would still leave an operating loss of more than $600 million by 2020.

That leaves cost-cutting initiatives. The Conference Boardoutlines five optionsthe mail service could choose to save money:

• Wage restraint. The report estimates that freezing wages for seven years would stabilize the annual operating loss at $300 million. Cutting nominal wages by one per cent a year (in effect, a three per cent cut in real wages) would eliminate the shortfall by 2020. But the report says this scenario "cannot be considered realistic."
• Alternate-day delivery for mail (but not for parcels). The Conference Board estimates that delivering mail every other day would eliminate about half the projected2020 operating loss. But it notes there would likely be "serious pushback from major mailers."
• Eliminating door-to-door delivery. The report notes that two-thirds of Canadian households already do without door-to-door mail serviceeither through centralized mail points, group mailboxes, delivery facilities, or rural mailboxes. Replacing all door-to-door service with community mailboxes for urban residential customers would have the largest financial impact reducing the expected 2020 operating deficit by $576 million.
• Further replacement of corporate post offices with franchised postal outlets. The report estimates annual savings of $100 million by 2020 if this option is chosen.
• Reduced speed of delivery.Reducing the service standard by one day would produce savings of $164 million a year by 2020. The report notes thatmore than 60 per cent of community mailbox users check for mail only every second day or less.

The Conference Board report doesnotrecommend any one option orcombination of options.

For its part, Canada Post notes that it has already improved efficiency and trimmed labour costs, but does not dispute the Conference Board's projections of hefty future operating losses ifthe status quo is maintained.

"Canada Post must seriously consider all the options put forward by the Conference Board with the understanding that no single initiative will be sufficient to stem the losses from the steep decline in mail volumes," the Crown corporation says in a statement.

"In doing so, the corporation must continue to meet its public policy obligations, such as serving every Canadian address, including those in rural and Northern Canada."

The NDP's critic for Canada Post, Olivia Chow, says it would be wrong for Canada Post to "retreat" from its mail delivery role.

"Instead of contemplating cutting postal services, Canada Post should find new opportunities to provide better and expanded services on the e-commerce front so they can increase their revenues," she told CBC News.

Chow said cutting door-to-door delivery to the more than five million Canadian homes that now get it would be unfair, she said. "There are people that arent very mobile ... who cant get to a centralized point."

Canada Post said it will announce something "in the coming days" to get feedback from the public and its customers about what movesit should take to address projected losses.