Canada Post Announces a Five Point Action Plan
Canada Post faces the same fundamental disruption as the USPS – declining volume and revenue from high margin letter mail resulting in mounting financial losses. The Conference Board of Canada conducted an assessment of Canada Post’s current financial trends and projected a $1 billion (CA) loss by 2020. After consultation with stakeholders, Canada Post announced a “Five Point Action Plan” to move the corporation to sustainability by 2019.
Five Point Action Plan: Ready for the Future
1. Community Mailboxes ($576 million
Elimination of to the door delivery for a little over 5 million addresses or about 30% of households is the big contributor saving the corporation $576 million. This gem has been on the table for a number of years but was thought too controversial and volatile and lost out to the Modernizing the Post program, a $2 billion capital program expected to generate $250 million in savings by 2017. This will affect about one third of all households. Canada Post has been delivering mail to residential and business addresses five days a week, Monday to Friday, for more than 40 years.
2. A New Approach to Pricing ($318 million)
Canada’s size, its geography and its low population density contribute to one of the highest cost structures for mail processing and delivery among industrialized countries. With the irreversible shift to digital communication, mail volumes are declining at a steep rate. Meanwhile, the number of addresses Canada Post delivers to climbs each year: since the beginning of 2007, the number of addresses Canada Post serves has increased by 845,000. Less mail, more addresses: the number of pieces of Transaction Mail (bills and statements) per address has fallen almost 24 per cent.
The corporation will introduce a new pricing model on March 31, 2014 with aggressive price increases along with different pricing models for retail versus commercial mailers.
- Prices at retail increase a minimum of 30% with booklets or rolls pricing at $0.85 and single stamps at $1.00. For customers with meters the increase is just under 20% at $0.75.
- It is expected most commercial customers will see a similar increase as well as for Direct Marketing Services; Addressed and Unaddressed Admail.
The Conference Board of Canada report modelled a 5% and 10% per year increase and it would improve profitability by $110 million and $318 million respectively. Although it is not clear what the increases will be going forward, it would seem this action will return closer to the $318 million number.
3. Franchise Post Offices ($100 million)
The third action is to completion the migration from corporate to franchise outlets in urban Canada and again according to the Conference Board, annual savings will be $100 million. With close to 6,400 postal outlets (as of December 31, 2012), Canada Post has the largest retail network in Canada. Currently, rural areas are served by more than 3,700 post offices, or about 60 per cent of the retail network
4. Streamlining Operations ($250 million)
The fourth step is continuation of streamlining the operation which would include the continuation of Modernizing the Post, which promises annual savings of $ 250 million a year by 2017. In addition, it is expected that the number of plants will be reduced from the current 21 to 8 to 10 (this was also considered as part of Modernizing the Post, but was deemed too controversial)
Finally, continuing to build off the win in the last negotiation in 2011, which saw new postal employees with a different wage scale and defined contribution benefit plan as compared to the costly defined benefit pension plan.
Gaining Support for the Plan
Canada Post had an extensive stakeholder outreach program, similar to what has been done in the U.S. The corporation has the support of its shareholder, the government of Canada. To gain that support it protected rural delivery and rural outlets which is key constituency to the Conservative Government. Canada Post has retained its fundamental charter to serve as a universal service, with strict specifications of what that means.
Canada Post was able to able to follow a linear process from start to finish. It suffered decline in volume and it began to lose money, it went to a respected third party (Conference Board of Canada) to validate the problem and generate alternatives, it vetted the alternatives with its customers and the public through a consultation process, arrived at a plan, sought and received approval from the shareholder and policy makers, announced and it will begin to execute.
Relevance to the USPS
It is a bold and decisive plan. The management of Canada Post has to be congratulated for taking the necessary steps to build a financially sustainable organization. Although this is a bold strategy, it is no bolder than the USPS Management Action Plan of 2010, and the “Path to Profitability” put forward by Postmaster General Pat Donohue. How much further along would the USPS and the mailing industry be today if Congress had been as supportive of the need for action as Canada’s Parliament?
By Patrick Bartlett
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