Mail pricing changes and parcels drive growth at Canada Post

Canada Post warned yesterday that Canadians are accelerating their adoption of digital alternatives to the physical mail service. The warning came despite latest results showing that the company’s core business has turned around last year’s first quarter loss of $27m into a $24m profit before tax in the first three months of this year.

The Crown Corporation said the introduction of a new tiered pricing system for transactional mail and continued growth in its parcels business helped turn around the quarter’s performance.

However, domestic letter volumes fell by 8.4% year-on-year as Canadians mailed 41m fewer letters, bills and statements than a year ago this quarter.

The impact on revenue was countered in the Transactional Mail segment by increased revenue from the new pricing approach, which took effect at the start of the second quarter 2014 and involved single piece stamps remaining full price while stamps bought in bulk enjoy certain discounts. As a result, Transactional Mail revenue grew by $112m or 9.1% year-on-year in the quarter. to $889m.

Direct mail revenue rose by 3.8% to $298m in the quarter, despite a slight decline in volumes.

Canada Post’s parcels business saw revenue up 6.2% to $380m, as volumes rose by 6.5% or 4m pieces.

The three months up to April 4, 2015, saw the Canada Post Group as a whole reporting a $22m pre-tax profit compared to a $37m loss in the same period 12 months ago.

The company’s 65,000 employees generated $2.06bn in revenue in the first quarter, up 5.4% on the same period in 2014.

The company said its employee benefit costs within the core business rose by 18.1% in the quarter, or by $70m, as a result in a change to discount rates and the impact of strong pension asset returns back in 2014.

Canada Post’s Purolator business saw its net loss of a year ago this quarter improved by 45.9% to $5m, on revenues of $402m, which were up 4% year-on-year in the quarter mainly thanks to an additional three business days in the quarter.

Transformation

Canada Post has been continuing its transformation process in order to respond to the ongoing impacts of its declining letter volumes. So far 100,000 addresses have been converted from doorstep delivery to community mailboxes.

In its first quarter report, Canada Post said it faces the same challenges as its global counterparts, managing the decline of its transactional mail volumes while maintaining a growing delivery network.

“Competition is increasing in all lines of business and the exclusive privilege on letters up to 500g is losing its value in the digital world,” the firm said.

“Growth of the e-commerce market has generated opportunities and increased competition. Canada Post also faces challenges as a result of an inflexible and expensive cost structure, and significant changes are required to improve its cost competitiveness.”

After a public meeting in Ottawa this week, the Canadian Union of Postal Workers cast doubt on the need for cuts in services, such as the reduction in doorstep delivery, considering Canada Post’s profitability.

Mike Palecek, national president of the union said: “When our money-making post office is trying to impose massive service downgrades on Canadians, you’d expect to hear better reasons for it. Instead, we keep hearing the same tired old talking points that just don’t stand up to scrutiny.”

Palecek claimed that changes to the Canada Post strategy could only come from an electoral change in government.