In 2014 Canada Post announced a five part restructuring plan designed to turn around its money losing operations. The plan indicated that with the steps outlined Canada Post would be profitable within three years. In fact, based upon the 2014 annual report the corporation moved much more quickly to accomplishing its profitability goals earning an operating profit of $299 million dollars. Revenue also increased by just under $420 million for a 5.5% change.
These are pretty significant numbers and upon review they may not be quite as surprising as first thought. The news is not all rosy however. Volumes in some areas, especially lettermail continued to drop, 5.4% and this drop was higher than in the previous year. Transaction mail declined by 6.1% per address indicating that alternative methods are continuing to replace the mailed invoice for many activities. Think of the push you receive from your personal as well as business vendors for you to accept electronic invoicing. This is a trend which continues to grow.
On the good side the volume of domestic parcels increased by 9.2%. One potential for this growth is an increase in online purchasing by consumers resulting more parcel deliveries being necessary in the marketplace. "Online shopping is growing our business from a position of strength," is how this phenomenon is described in the report. It is an area which is anticipated to grow even though the parcel business is very competitive.
One reason there was growth in both revenues and profit was the change in the pricing structure for lettermail which was introduced in 2014. Using a tiered pricing structure which provided for a lower price for those using postage meters and running higher volumes of mail when compared to occasional users buying single stamps, a three tiered price was introduced. The base cost of a single first class stamp rose significantly over the 2013 level. It is possible that this new higher cost aggravated the move away from mail to other forms of communication for low volume users. It may also have affected the commercial use of mail as well. Combined they probably account for a major portion of the drop in lettermail volume but potentially had a lower effect on the revenue associated since the per piece cost was higher.
Other changes in the plan are still being seen as controversial as Canada Post moves to end the final third of home delivery that was made to individual residences. There is a significant back lash against this decision, including potential court action in some jurisdictions. Just check on the stories from the City of Hamilton about the challenges to Canada Post's installation of new 'super boxes' to get some sense of the frustration. Canada Post indicates that as the market changes there is a real need for them to reduce the costs of individual mail delivery and that the elimination of individual home delivery is one step in this fight. Of course the reduction in workforce that is needed to be able to do this delivery will be a big help in meeting Canada Post's long term profitability goals.
Some commentators think that with the fast turn around in profits shown in 2014 Canada Post could move away from some of the more controversial parts of their plan but at this point there is not much indication this will happen. According to one commentator the lettermail windfall in 2014 amounted to $238 million in extra revenue, more than half of the total increase realized.
No matter what your take on the 2014 results it is evident that Canada Post is making changes and that postal delivery in Canada is going to be different than it ever has been before. Some of these differences are going to be great for most users and some may not.
When Canada Post announced the 2015 rates, the changes were not as major as seen in 2014 (how could they two years in a row), however there was some tickering around the edges. The discount from the bulk letter rate for machine coded lettermail (postage generated by a postage meter in a business), was lowerd by two cents which seemed a strange change. The impact on volumes could be minor but it does cause postage sensitive users to continue to look at the overall cost of the service.
Who knows what we will see in the 2015 annual report and this fall when the 2016 rates are announced. What we can surmize is that Canada Post will continue to make changes. Maybe in some ways we can be happy with what is being done. The US Postal Service (an independent government agency of the US government) showed a $5.5 billion loss in fiscal 2014. The Canadian operating profit of $299 million looks pretty good in light of that stat.