Canada Post faces public concerns about modernisation

Canada Post’s chief executive Deepak Chopra defended the “massive transformation” at his company today, as it opened itself to questions from the public at its annual general meeting. The meeting at Thunder Bay, Ontario, saw Chopra explaining the reasoning behind the $2bn Postal Transformation programme, which is seeking to modernise and streamline the postal infrastructure in Canada.

And, he discussed Canada Post’s intent to considerably expand its digital services, despite the impact of electronic communications on physical mail volumes.

Chopra said the mail industry around the world was going through the same situation – a “massive mismatch in costs and revenue”.

In Canada, the rapid growth of the country has meant Canada Post having to deliver to a million extra households over the past five years, while during the same time mail per household fell by 17.5% in Canada. This decline of mail volumes is expected to accelerate. “Electronic substitution is starting to play a bigger role in our transactional volume,” said Chopra.

Chief Financial Officer Wayne Cheeseman warned today that although Canada Post has been profitable for the last 16 years, a one-off tax benefit had the effect of “over-instating” its results in 2010. Group profits were down 27% on 2009 figures, with mail volumes down by 193m pieces compared to 2009, including a 4% drop in the most profitable transactional mail area.

This year, with the summer’s disruption in services, revenues have been slipping 0.2% compared to 2010, with profits down 96%. Meanwhile, the company’s pension fund is some $3bn outside the boundaries of solvency.

Concerns

Today’s meeting saw many of the concerns from the public relating to service quality and the company’s labour relations following the summer’s strikes and national lock-out.

Fears were expressed by rural community members about losing their post offices, or the moving of mail collection facilities to unsafe areas.

Chopra insisted that he was not seeking to just cut costs by stripping out postal facilities, he was aiming to improve services.

The Canada Post CEO said: “Postal Transformation is not for survival – we cannot cut costs and expect to remain the best company. This is a fundamental investment, a down payment on our future. We are changing our plants, we are changing our equipment – yet we do not have the luxury of being able to stop operating while we do so.”

He said later: “It is a little like driving along and trying to change the tyre at the same time.”

Physical opportunities

Chopra predicted there would continue to be a “big role” for the physical address in Canadian society despite the rapid electronic substitution of transactional mail. What was letters and a few parcels would soon become parcels and a few letters, he suggested.

The big opportunities would be in maximising the value of mail, particularly in “evidence mail”, “emotion mail” and e-commerce volumes, he said.

On this latter point, the company has placed a high priority on getting its track-and-trace systems in place to rival private sector competitors, to gain the reputation as a reliable, low-cost shipper for online purchases.

“Ecommerce is doubling, but consumers in Canada at the moment are researching purchases online, not necessarily shopping online, more than people in other parts of the world. So we believe there is opportunity there.”

Services for ecommerce should improve through the general modernisation of the network, said Chopra, such as the motorisation of delivery routes.

But, he also stressed the technological improvements that will underpin track-and-trace systems and other aspects, including the roll-out of hand-held devices for Canada Post staff so items can be scanned at many more points in the chain.

Canada Post will also be looking to develop new mail services to counteract the declining transactional mail, potentially looking at areas such as specialist services for older people, for example in medical mailings.

Remaining relevant

Looking at the major transformation of Canada Post, Chopra drew parallels with other corporate giants that have had to go through major financial crises, such as consumer electronics behemoth Apple, which was on the verge of bankrupcy in 1996 before a reinvention.

“We are not the first one and will not be the last one that has to refocus our business,” he said.”The basic principle for any company in business is to remain relevant.”

Chopra described the company’s immediate future as a “decade of duality”, as it works to combine physical and digital communications. The Canada Post CEO reshaped the entire business this summer to establish two major divisions – a Physical Mail Network and a Digital Mail Network.

“We can’t be cut out of the digital economy. We believe the mail will continue to remain relevant but the medium may move to digital for certain types of mail.” Later, he said: “We would rather the user goes to our digital network rather than someone else’s network. We can’t sit back and just watch our business decline.”

While Canada Post already has an enviable portfolio of digital services geared towards consumers, Chopra said the next stage was to extend its digital knowhow to providing electronic communication services for businesses.

Canada Post will be still be pushing its existing digital services for consumers, such as its digital mail service epost, which already has 7m people registered, by promoting the value of the platform for consumers when compared to rival services.