Canada Post losses to continue until business model changes

Major losses at Canada Post are set to continue this year, next year and beyond until the company can reposition itself with a focus on ecommerce parcels, digital communications and direct marketing. That was the message from the Crown Corporation’s president and CEO Deepak Chopra today, as he addressed an annual public meeting in Ottawa.

After a rocky year in which Canada Post has been hit by catastrophic conflict with its unionised workforce, a $150m lawsuit over pay equity, accelerating mail volume declines and a $6.6bn pension deficit, the Corporation has come off 16 consecutive years of profitability to record a $253m loss in 2011.

Chopra said: “We have now turned the corner where the revenue will not exceed our costs in the absence of changes.”

This year for the first six months, the Canada Post Group has already made a $13m loss, and its losses are set to continue as the company researches how to change its business model.

Wayne Cheeseman, the Canada Post CFO said today: “We are not likely to achieve our plan for 2012. Despite the fact that we are putting measures in place to help mitigate further losses, we expect to lose about $100m in the Canada Post segment in 2012, and have significantly larger losses in 2013 and beyond.”

In response, Canada Post’s executives said they were reviewing how Canada Post does business, and will change the Corporation’s business model – though it will likely be an “evolution, not a revolution”, with cautious implementation of change.

Chopra said there was no “silver bullet” to save the Corporation, that a holistic solution was required.

The Corporation will reshape itself as an ecommerce and direct mail delivery company, with a significant role in digital communications as well. Chopra hinted that major changes in the Corporation’s infrastructure would also be needed, beyond the current Postal Transformation modernisation programme.

Canada Post will also need resolution on its 20-month dispute with the Canadian Union of Postal Workers, with Chopra stating he was still “optimistic” on that score, while the massive pension headache will also need to be tackled.

However, the Canada Post executives said they were not going to take the company into new non-postal markets like financial services just to raise revenues.

“We can’t enter businesses we know nothing about,” said Chopra.

ecommerce and parcels

Canada Post president and CEO Deepak Chopra said today that his company was turning a significant corner in how it operates

Perhaps most important of all in Canada Post’s future will be ecommerce and parcels, its president suggested. However, in a highly competitive market, Chopra said his company had to invest to take advantage of the growth in Internet shopping.

“If the traditional postal company has to compete with global players in the ecommerce marketplace then it has to be efficient and cost effective,” he said, stating that ecommerce is so competitive that customers will shift supplier where there is a five-cent difference in shipping rates.

Chopra said Canada Post had to put itself in a better position to create a low-cost proposition for ecommerce.

Part of the company’s ongoing Postal Transformation modernisation initiative is already beginning to phase in more delivery vehicles, to replace bicycles and delivery on foot, in order to better facilitate delivery of more parcels and fewer letters.

“We have to realign our investment to focus on parcel capacity,” said Chopra. “Taking advantage of our network, the ability to pick up at a post office or manage returns, or enable Canadians to shop across the border – since 40% of Canadian online shopping is non-domestic.”

The Canada Post president also said he believed his company had a role to play in encouraging Canadian ecommerce itself, since only around 4% of Canadian retail is currently online, compared to 9% in the US and 15% in the UK.

Transactional to digital

Meanwhile, Chopra said today that after years of public access to the Internet, the recent economic downturn and the rise of tablet technology had finally signaled the end of transactional mail.

“It’s starting to give paper a run for its money,” he said. “Finally we have something that looks and feels like paper. You can take your tablet to the beach, if you turn the page on your iPad if looks like the paper in a book. So the game has changed.

“If you watched the trend line in the last six years, we have lost a billion letters. I predict we will lose another billion pieces a lot quicker than that.”

Chopra said mail was now moving online, with Canada Post no longer holding an exclusive privilege over mail communications as it had during its “40-year bull run” towards the end of the last century.

The Canada Post president said businesses in Canada were now offering digital billing and statements as a default option for their customers, and were now charging them if they want physical paper bills and statements.

As a result, the decline in transactional mail volumes in Canada is now accelerating – a 3.9% year-on-year decline seen in 2011 has already become a 4.5% decline in the first six months of 2012. Domestic letter mail volumes are currently declining by 4.9%, while even direct mail has been hit, with volumes 5.5% down on the period before last year’s labour dispute.

“The ground is shifting – big time – on the very core on which we built our business,” Chopra said. “When businesses start charging consumers for products and services that they have alternatives for free, they will vote by moving to those alternatives.”

Canada Post is currently repositioning its digital billing platform, ePost, as an all-round lifestyle organiser for consumers, and Chopra said after a decade of debate over whether jumping into digital will cannibalise the business, “digital is no longer an option for us”.

“Canadians have already voted by the 2bn mailpieces that they now have digitally. Now the question is do they really want to go to 15 different websites with separate usernames and log-ins to pay their bills? We believe there is opportunity for Canada Post to provide a new place.”

In the new digital world, mobile access will also be important, Chopra said, noting that 600,000 people had downloaded Canada Post’s new mobile app within just weeks of launch.

Although direct mail volumes have also been slipping at Canada Post this year, Chopra did state his intention to defend the market, stating that there was still “tremendous opportunity” in direct mail.

He said he believed Canada Post now needed to work to educate people in Canada about the value of the mail and its effectiveness in promoting a marketing message compared to other channels.

“We have an RFP (request for proposals) to engage a company to help us reach those ad agencies who advise large clients on how to use the mail and when to use it,” Chopra said.