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The Future of Postal Service in Canada

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The Conference Board of Canada, 52 pages, April 2013

Report by Vijay Gill, Crystal Hoganson, David Stewart-Patterson

Note - Door to Door postal service is slated for cancellation in Canada, and this "objective" report, is problematic as Canada Post's CEO, Deepak Chopra is a board member of the Conference Board of Canada, which tempers the analysis significantly.

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The Future of Postal Service in Canada

  1. 1. Report  April 2013 The Future of Postal Service in Canada Technology and innovation
  2. 2. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. The Future of Postal Service in Canada by David Stewart-Patterson, Vijay Gill, and Crystal Hoganson About The Conference Board of Canada We are: The foremost independent, not-for-profit, applied research organization in Canada. Objective and non-partisan. We do not lobby for specific interests. Funded exclusively through the fees we charge for services to the private and public sectors. Experts in running conferences but also at con- ducting, publishing, and disseminating research; helping people network; developing individual leadership skills; and building organizational capacity. Specialists in economic trends, as well as organizational performance and public policy issues. Not a government department or agency, although we are often hired to provide services for all levels of government. Independent from, but affiliated with, The Conference Board, Inc. of New York, which serves nearly 2,000 companies in 60 nations and has offices in Brussels and Hong Kong. ©2013 The Conference Board of Canada* Published in Canada  •  All rights reserved Agreement No. 40063028 *Incorporated as AERIC Inc. Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice. Preface The spread of electronic communications has seriously affected the use of postal services by Canadians. Canada Post was able to cope with the impact of falling mail volumes through incremental efficiencies and price increases, but fell into deficit in 2011 after 16 profitable years. Canadians must consider more fundamental changes if they wish to prevent Canada Post’s losses from expanding dramatically in the years ahead. The report explores possible paths forward through a combination of econometric analysis, competitor risk assessment, and interviews; focus groups; and polling of residential and business customers. It offers a framework for constructive discussion of how Canadians would prefer to shape a sustainable postal service for their future.
  3. 3. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Contents Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i Chapter 1—Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Chapter 2—Global Trends in Postal Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Liberalization and Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Expansion Into Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Development of Digital Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 E-Commerce and Parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Changes to Service Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Chapter 3—The Competitive Environment in Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transaction Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advertising Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Parcels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Trends Affecting the Competitive Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 11 13 15 16 17 Chapter 4—The Outlook for Canada Post . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Volume and Revenue Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Chapter 5—Expectations and Use of Postal Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . How the Use of Postal Services Is Changing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . What Canadians Expect and Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Business Case for Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ability to Replace Canada Post . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24 27 33 35 Chapter 6—Sustaining the Postal Service That Canadians Need . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option 1: Large Price Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option 2: Wage Restraint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option 3: Alternate-Day Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option 4: Elimination of Door-To-Door Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option 5: Conversion of Corporate Postal Outlets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option 6: Reduction of Service Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Possible Combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 38 39 40 40 42 42 43 Chapter 7—Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Appendix A—Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
  4. 4. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. Acknowledgements This report was written and researched by David Stewart-Patterson, Vijay Gill, and Crystal Hoganson. It was made possible with funding from Canada Post Corporation. Special thanks go to Dave Crapper of Genesis Public Opinion Research Inc., who conducted the focus groups and the residential and small business polling that provided the basis for Chapter 5. We also thank our internal Conference Board contributors, Ross Prusakowski and Decky Kabongi, for their work on the econometric analysis; and Dan Muzyka and Glen Hodgson for reviewing the report. We extend our thanks to the three external reviewers of this report: Michael Trebilcock of the University of Toronto, and Frank Graves and Derek Jansen of EKOS Research Associates. The findings and conclusions of this report are entirely those of The Conference Board of Canada. Any errors and omissions in fact or interpretation remain the sole responsibility of The Conference Board of Canada.
  5. 5. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Executive Summary The Future of Postal Service in Canada At a Glance Canadians face a fundamental challenge: they still rely on postal service but are steadily shifting communications from physical to digital. This is driving down the volume of mail even as the number of addresses to be served continues to rise. Although Canada Post operated profitably for 16 consecutive years, these current trends are projected to lead to annual operating deficits of close to $1 billion by 2020. The postal needs of Canadians are evolving, and Canada Post currently delivers a higher standard of service than Canadians expect or use. No single change will suffice to prevent significant and growing losses on postal operations. But a series of measures that would align service standards with the actual and future needs of Canadians could enable Canada Post to return to financial self-sustainability. T he spread of advanced communications technologies is changing the face of postal services worldwide. Across industrialized economies, mail volume is declining relentlessly. Postal services in other countries are pursuing a range of strategies in response to this trend. The strategies include privatization and liberalization; growth into new lines of business, such as financial services; development of digital products; expansion of parcel delivery; and reduction of service standards. Until 2011, Canada Post succeeded in remaining profitable for 16 years through steady improvements in efficiency and regular price increases. Canada Post also has pursued some of the strategies seen internationally— notably the development of digital products such as epost and Vault, and improvements in parcel delivery service to compete within the rapidly growing market created by e-commerce. But traditional forms of mail such as bills, statements, and payments are falling steadily in volume. Major mailers in Canada, including governments, are making concerted efforts to reduce their use of postal services by encouraging consumers to switch to electronic alternatives. Advertising mail, like other traditional advertising media, faces intense pressure from the explosive growth of online advertising as well as e-mail and mobile options. As Canadians seek more information online, demand for hard-copy publications is declining and publishers are moving toward digital replicas aimed primarily at tablets and mobile devices. The one area of growth is in parcel delivery, where e-commerce is driving demand for delivery of packages from online retailers and distributors to homes and businesses. Find this report and other Conference Board research at www.e-library.ca
  6. 6. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. ii  |  The Future of Postal Service in Canada—April 2013 Our projection suggests that Canada Post’s transaction mail, addressed and unaddressed advertising mail, and publication volumes will decline by about 26 to 27 per cent by 2020. Parcel volume is projected to buck the trend and see a 26 per cent increase over the same period, but this will remain small as a share of total mail traffic. While the Crown corporation’s Postal Transformation initiative will have a significant impact on its bottom line by boosting productivity and improving efficiency, its annual operating loss is nonetheless projected to reach about $1 billion by 2020. By presenting a portfolio of potential responses to the challenge of sustaining postal service, this report offers a framework for discussion of options by Canadians. Polling of small business and residential customers confirmed that their habits are changing, with almost half of households saying they now send two pieces of mail or less per month. While small businesses, as a group, also are using mail less frequently, they remain relatively dependent on mail for invoicing and payments. Both groups of customers confirmed that their demand for parcel service will continue to rise with the spread of e-commerce. But residential customers noted growing frustration over the need to travel to pick up parcels when no one is home to accept delivery during the day. Residential and small business customers recognize that the price of a stamp represents good value, and both appear willing to accept slower service than they currently receive. What matters most to these customers is not speed but certainty of delivery and, on this score, they express a high degree of confidence in the mail. Their responses suggest that Canada Post, like postal services in other developed countries, is now providing a higher level of service than necessary. Canadians believe that despite the spread of electronic communications, they always will need postal service. They have a high degree of trust in Canada Post; one that carries over from physical delivery to digital products. However, neither residential nor small business customers have fully made the connection between the changes in their own behaviour and the impact of these changes on Canada Post’s business model. They recognize that the status quo is no longer viable, but are not yet fully convinced of the scale and speed of change that may be required. Nonetheless, 80 per cent of the household and small business customers surveyed for our report agreed with the statement that “Canada Post has to make fundamental changes to the way it has operated in the past in order to be relevant in the future.” The quantitative analysis done for this report suggests that Canada Post could reduce its projected losses significantly by raising prices faster than inflation, but that it cannot realistically return to self-sustainability through price increases alone. Therefore, the report examined five options for cutting costs: wage restraint; alternate-day delivery for mail (but not parcels); converting Canadian households’ receiving door-to-door delivery to community mailboxes; further replacement of corporate post offices with franchised postal outlets; and reduced speed of delivery. Eliminating delivery to the door for urban residential customers would be the option with the largest financial impact, saving a projected $576 million a year by 2020. No single change to prices or service standards will be sufficient to enable self-sustainability as mail volumes continue to decline. While there will probably be a relatively stable and residual level of demand for mail services, it is impossible to determine when and where that level might be reached. Any given change in service is likely to have a one-time positive impact on the bottom line, but cannot change the relentless downward slope of the mail volume curve. Thus, sustaining a postal service that will meet the evolving needs of Canadians will require a combination of measures, but not necessarily all at once. The purpose of this report is not to recommend any one or particular combination of options. Rather, its goal is to illustrate both the potential financial impact of a range of choices and how such changes would be seen by Canada Post’s business and residential customers. By presenting a portfolio of potential responses to the challenge of sustaining postal service, this report offers a framework for discussion of options by Canadians in their roles as customers and, through the Government of Canada, as shareholders and taxpayers. Find this report and other Conference Board research at www.e-library.ca
  7. 7. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Chapter 1 Introduction vast land. In 1981, responsibility for delivering the mail was moved to a Crown corporation as a means of encouraging greater efficiency, but both the monopoly power and corresponding service obligations remained. Chapter Summary Canadians are changing the ways in which they communicate, and this is having a dramatic impact on their use of postal service. Canada Post engaged The Conference Board of Canada to conduct an independent assessment of the future of postal service in Canada, and to consider potential paths forward. The research explored the attitudes and behaviour of Canada Post residential and business customers through a combination of interviews, focus groups, and polling. To quantify the impact of economic, technological, and demographic trends on Canada Post’s business, the Conference Board employed econometric analysis and a competitor risk assessment to project future mail volumes, revenues, and operating income. C anada set up its postal service in an era in which physical delivery of letters was the primary means of communication among its farflung communities. Given Canada’s geography, postal service was seen as a public service essential to both the political unity and economic efficiency of the country. Postal service, therefore, was set up as a department of the federal government, with monopoly power to offset the high cost of delivering letters and goods across a The spread of electronic communications has dramatically affected the use of postal services by Canadians. The telephone for voice communication arrived first, followed by the use of phone lines to transmit documents via fax. Then the Internet became widespread, offering easier, cheaper, and faster substitutes for many forms of communication—from bills and payments to advertising and publications, personal letters, and even greeting cards. In this digital age, Canada Post’s monopoly over lettermail has clearly declined in economic value even though Canada’s growing population and the demographic trend to smaller households continues to increase the number of addresses that the post office is required to serve. This combination—the rising number of addresses and the falling volume of mail—presents Canadians with a fundamental challenge, one that is becoming acute across advanced economies. (See Chart 1.) Until recently, Canada Post has been able to cope with the impact through incremental strategies to improve efficiency, but it fell into deficit in 2011 after 16 years of consistent profit. Canadians now must consider more strategic choices if they wish to prevent Canada Post’s losses from expanding dramatically in the years ahead. Therefore, Canada Post engaged The Conference Board Find this report and other Conference Board research at www.e-library.ca
  8. 8. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 2  |  The Future of Postal Service in Canada—April 2013 Chart 1 Mail Volume and Number of Addresses (billions of pieces; millions of addresses) Mail volume (left) Number of addresses (right) Forecast 18 17 16 15 14 13 12 12 11 10 9 8 7 6 2003 04 05 06 07 08 09 10 11 12f 13f 14f 15f 16f 17f 18f 19f 20f The econometric analysis was used primarily to provide price and GDP elasticities, and was augmented with a risk matrix in order to complete the projection of volumes by line of business. Data from ZenithOptimedia were leveraged to estimate the impacts of expected advertising expenditures on alternate sources such as Internet search/display, mobile advertising, and digital replicas of publications. Although demographic factors (such as the share of population by decade of birth) were correlated with transaction mail volumes, they were not statistically significant in terms of providing explanatory power. Source: Canada Post; The Conference Board of Canada. of Canada to conduct an independent assessment of the future of postal service in Canada, and to consider potential paths forward. The first step was to assess how technological change is affecting the expectations of Canadians and the extent to which they actually use and depend on its services. To this end, the Conference Board interviewed a range of Canada Post’s major customers and engaged Genesis Public Opinion Research Inc. to conduct focus groups and a telephone poll of small business customers and a parallel telephone poll of residential customers. Methodology To quantify the impact of economic, technological, and demographic trends on Canada Post’s business, the Conference Board employed econometric analysis and a competitor risk assessment to project future mail volumes, revenues, and operating income. This framework, in turn, was used to test the financial impact of a variety of potential actions aimed at improving the sustainability of the postal business. While Canada Post supplied some of the historical data used in the analysis, the analytical framework was developed independently. The resulting observations and conclusions are those of The Conference Board of Canada alone. To quantify the impact of economic, technological, and demographic trends, the Conference Board employed econometric analysis and a competitor risk assessment. The research explored the attitudes and behaviour of Canada Post customers through a combination of interviews, focus groups, and polling. The Conference Board conducted individual interviews with a selection of Canada Post’s major customers to add qualitative insight to the quantitative analysis. Genesis Public Opinion Research Inc. explored the attitudes of residential customers through a telephone survey of households across the country. The objectives of the survey were to: understand customers’ current use of both lettermail and courier/package services; determine their service expectations and related attitudes to those lines of business; assess their use and evaluations of corporate and private retail outlets; determine their understanding of the business challenges Canada Post faces. The residential survey selected and interviewed correspondents based on the way in which they receive mail. The target sample included approximately 500 customers who get mail delivered to their door (DTD), 300 who use group mailboxes (CMB), 250 who receive mail in their lobby or common area (LBA), 100 who have mail Find this report and other Conference Board research at www.e-library.ca
  9. 9. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 3 Table 1 Method of Receiving Mail (per cent) Percentage of survey respondents Actual percentage of Canadian residential addresses To your door 41 40 Group mailbox in your neighbourhood 25 29 Lobby or other common area in your building 21 20 Mailbox at the end of your driveway 8 5 A postal box at an actual Canada Post building 4 5 A postal box at an RPO/private business 1 1 Method Source: Genesis Public Opinion Research Inc. delivered to the end of their driveways (RMB), and 60 who have postal boxes in Canada Post or private buildings (DFLB). This roughly mirrors the current distribution of customers by delivery category, with an oversample of rural driveway customers. (See Table 1.) A total of 1,212 residential customers, 18 years of age or older, were surveyed by telephone from September 26 to October 10, 2012. The results are considered accurate to within +/- 2.8 per cent, 19 times in 20. Genesis explored the views of small businesses through a two-stage process. The first stage was a series of five focus groups, held in Moncton, Montréal, Mississauga, Brandon, and Calgary. The second stage involved a telephone survey of individuals in small businesses who make decisions on postal products and services within their company. The interviews were conducted with 800 businesses selected randomly from among a nationwide pool of businesses with more than 1 but fewer than 100 employees. The sample was generated using data from Dunn and Bradstreet. The source data for the sample were stratified by employee size, region, and Standard Industrial Classification (SIC). Only businesses with 2 to 100 fulltime employees were eligible for inclusion in the final sample. The sample was then randomly drawn from businesses across the full range of over 1,000 SIC codes, but it excluded Canada Post, print and electronic media, hospitals, educational institutions, and all three levels of government. Respondents were selected if they were identified as the person in the establishment most involved in the day-to-day operation of the organization’s incoming and outgoing mail. All those interviewed claimed their organization used the postal system for sending “letters and regular mail.” The survey covered broadly the same set of issues as for residential customers and was conducted during September and October 2012. Results from this survey are considered accurate to within +/- 3.5 per cent, 19 times in 20. Find this report and other Conference Board research at www.e-library.ca
  10. 10. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. Chapter 2 Global Trends in Postal Service Chapter Summary Electronic alternatives are changing the face of postal service around the world. Other countries are pursuing the following five major approaches to enable postal services to reduce costs or enhance revenue: – liberalization and privatization; – expansion into new lines of business; – development of digital products; – expansion of parcel delivery; – reduction of service standards. Canada Post already is pursuing two of these approaches by developing new digital products—including epost and Vault—and by increasing its efficiency, capacity, and service offerings in the parcel business. T he digital revolution has changed the face of postal service as we know it. No longer is the post office viewed as the primary means of connecting people and businesses wherever they are located. Widespread access to broadband and mobile technologies is having a fundamental impact on how people and businesses communicate. People increasingly are communicating by phone, e-mail, text, and other web-enabled tools. Growing numbers are accessing information for work and for pleasure on websites, e-readers, and tablets. Customers and providers alike are handling statements, invoices, and payments online. E-commerce has moved quickly from an add-on means of browsing for products to a primary sales channel. Generally, survival in the core business of lettermail has required taking out costs faster than volume-driven revenue declines. This has meant either additional investment in technologies such as high-speed sorting equipment or reductions in service standards. However, there is a growing recognition around the world that postal services must develop new strategies to survive. A 2012 study by the International Post Corporation and Boston Consulting Group concluded that, by 2020, moving the mail will no longer be the core business of postal operators.1 Despite differences in the economic and social environments across countries, it is clear that postal operators around the world are facing declining lettermail volumes. The Universal Postal Union reported that between 2006 and 2010, domestic lettermail traffic decreased by 3.5 per cent, while international mail decreased 13 per cent.2 1 International Post Corporation and The Boston Consulting Group, Focus on the Future, 22. 2 Universal Postal Union, The Global Postal Network—Key Figures. Find this report and other Conference Board research at www.e-library.ca
  11. 11. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 5 To deal with this decline, postal services are continuing efforts to reduce costs through greater efficiency and pursuing alternatives that could enhance revenue beyond lettermail. This chapter discusses some of the most notable approaches that other countries have taken to date. These include: liberalization and privatization—as a means of encouraging efficiency through competition and market discipline; expansion into new lines of business—notably financial services, to generate profits that can offset the declining mail business; development of digital mail products—to retain postal customers through improved and value-added postal services that go beyond physical delivery; expansion of parcel delivery services—to make better use of the mail delivery infrastructure by generating volume and revenue from the growth of e-commerce; reduction of mail service standards—to cut costs through changes such as reduced frequency of delivery. Liberalization and Privatization In many countries, especially in Europe and Australasia, governments have strengthened the pressure for efficiency by exposing postal services to increased competition through liberalization of markets, elimination of mail monopolies, or privatization of postal operations. Since 1997, Europe’s postal industry, under the direction of the European Commission (EC), has slowly become liberalized in response to a wider economic agenda with a focus on either modernization or commercialization by the state.3 By January 2013, all 27 members of the European Union had eliminated postal monopolies. Some critics may argue that liberalizing or privatizing postal services could result in a decrease in the quality of service. But research has indicated that moving to a liberalized or privatized postal service can create more benefits than harm. To illustrate, a 2007 study reviewed the performance impacts of postal deregulation in a number of countries, including Germany, Australia, New Zealand, and the United Kingdom. The research Liberalization Versus Privatization Liberalization is a broad term referring to the reduction or removal of government controls in order to increase competition. Liberalization may involve the introduction of market forces, removal of price controls, lowered tariffs and quotas, and removal of operating restrictions on an industry. Privatization refers specifically to converting government-run entities into private ones. It is possible for a government to privatize a monopoly business—but, in practice, a shift in ownership tends to occur in conjunction with the liberalization of markets. Source: Bervoets, The Liberalized Postal Service, 13–14. found that postal operators who decreased governmental involvement had increased service quality, became more innovative, and improved their productivity.4 Countries have taken different approaches to liberalization and privatization. Germany, for example, opted in 1990 to gradually reduce the scope of the postal monopoly and partially privatized its postal operator, Deutsche Post.5 Germany opened its postal services markets to competitors who proved able to compete in several areas of the market—even those areas believed to be the hardest to enter. By 2000, Deutsche Post had become fully privatized. Through attrition, the size of the workforce was reduced by 38 per cent and, by 2010, productivity increased by 20 per cent.6 Other examples include the Netherlands, which privatized PTT Post (now TNT Post) and, after 10 years, successfully decreased its labour costs from 55 per cent of total costs to 41 per cent. Productivity rose by 16 per cent.7 Austria’s Österreichische Post began the process of liberalization in 1998. In 2006, Austria sold a minority stake in the post to private investors and, by 2011, the privatization was complete. Since the liberalization process began, Österreichische Post has shrunk its workforce by Iacobucci, Trebilcock, and Epps, Rerouting the Mail, 11. Ibid., 17. 5 Ibid., 13. 6 3 4 Geloso and Chassin, Canada Post: Opening Up to Competition, 3. 7 Ibid. Find this report and other Conference Board research at www.e-library.ca
  12. 12. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 6  |  The Future of Postal Service in Canada—April 2013 25 per cent, invested in new equipment, decreased its labour costs by 14 per cent, and nearly doubled its productivity.8 In New Zealand, postal reform was driven by a “broad economic policy of commercialization of the state enterprise sector.”9 The New Zealand government owns NZ Post, but the organization is directed to act like a private sector firm—it needs to generate a profit, repay loans, self-fund through its earnings, and pay taxes and dividends.10 NZ Post moved from generating a loss to creating a profit by cutting costs by 30 per cent, speeding up mail delivery, increasing “on time” delivery by 15 per cent, and nearly doubling its overall productivity.11,12 As a Crown corporation, Canada Post has both a public service mandate and an obligation to act like a private sector firm—at least to the extent of being self-sufficient. Neither privatization nor liberalization of markets is, by itself, a strategy for sustaining postal services in an environment of decline. They are policies intended to drive more rapid response to that environment by encouraging or enabling postal services to make decisions that might be more difficult or politically impossible to pursue as an arm of government. In 1981, Canada turned its postal service into a Crown corporation. As such, Canada Post has both a public service mandate and an obligation to act like a private sector firm—at least to the extent of being self-sufficient. Until fiscal year 2011, Canada Post operated consistently at a profit. And, it had been doing so while its monopoly lettermail privilege declined in value due to a growing number of cost-effective substitutes. Put another way, the proliferation of digital alternatives to mail has, in effect, liberalized the postal market to a great degree. 8 Ibid., 4. 9 Iacobucci, Trebilcock, and Epps, Rerouting the Mail, 11. The key decisions with respect to the future of postal service in Canada are about public policy; that is, about how postal services could change in order to meet the evolving needs of Canadians in the digital era. Privatization has been a means to that end in some other jurisdictions, but this report focuses on desired outcomes rather than mechanisms for achieving those outcomes. Expansion Into Financial Services For international postal operators, the primary new business line being entered is financial services. In some countries, such as Japan and Great Britain, financial services have been a core element of the post office for many years. In other countries, financial services have been gradually introduced to postal services over time. The addition of financial services through postal outlets offers many potential benefits. For instance, it can facilitate financial inclusion in rural areas while also mitigating the decline in postal revenues.13 Postal banks serve large markets, but can be low in incremental cost because they make shared use of the postal retail network. According to a discussion paper of the United Nations Department of Economic and Social Affairs, banking revenues in many countries are actually essential to generate profits from their postal networks.14 Postal services are generally accepted as safe, trusted, reliable institutions. As such, the public tends to view postal financial services as a “safe haven.”15 The Universal Postal Union (UPU) estimates that more than 1 billion people worldwide conduct banking through postal services and, in 2010, 51 postal operators worldwide held 1.6 billion in savings and deposit accounts.16 13 Berthaud and Davico, Global Panorama on Postal Financial Inclusion, 3. 10 Ibid. 14 Scher, Postal Savings and the Provision of Financial Services, 15. 11 Geloso and Chassin, Canada Post, 3. 15 Berthaud and Davico, Global Panorama on Postal Financial Inclusion, 3. 12 Lammam and Karabegovic, “Recent Mail Disruption Strengthens Case to Privatize Canada Post.” 16 Ibid. Find this report and other Conference Board research at www.e-library.ca
  13. 13. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 7 Financial services have also been lucrative for postal operators. For instance, Germany’s Deutsche Postbank increased its total volume of savings by 21 per cent in the first half of 2009 alone, and its market share increased by 10.3 per cent.17 For PostFinance, the financial branch of Swiss Post, financial services were the main driver of growth, leading to an 11.5 per cent increase in net profit in 2009. In the first three quarters of 2009, PostFinance saw a 4 per cent increase in the number of new customers; a 5 per cent increase in the number of new accounts; and an exceptional year with the first three quarters of 2009 outperforming 2008 by 75 per cent.18 This was also true for Poste Italiane, which recorded a 5.5 per cent drop in its postal services’ segment revenue. But due to its growth in the financial and insurance services, Poste Italiane saw overall revenues increase by 13 per cent.19 Other countries seeking to leverage their extensive retail presence and customer trust have also moved into the financial services business. In New Zealand, the government-owned postal service set up Kiwibank as a subsidiary in 2002. This action was a means of competing with the large Australian banks that controlled 80 per cent of the retail banking sector in New Zealand.20 Within the first five years of its creation, 500,000 customers (or approximately 13 per cent of New Zealand’s population) transferred their deposits to Kiwibank. In the second half of 2011, Kiwibank had a return on equity of 11.7 per cent.21 Canada has a highly developed financial services sector that extends from large banks to small credit unions. While there is clearly room for Canada Post to explore digital products involving financial transactions such as invoicing and bill payments, the conditions that allowed 17 Universal Postal Union, The Global Economic and Financial Crisis, 17. 18 Ibid. 19 Moran and others, Achieving High Performance in the Postal Industry, 6. other postal administrations to succeed in banking do not exist in Canada. Therefore, this report does not explore financial services as an option in Canada. Development of Digital Products As lettermail volumes decline, postal operators have turned to diversifying their products and services in order to generate additional revenue streams. By integrating digital and physical mail services, international postal operators have been able to capitalize on their existing assets and sustain their competitive advantage in the market. Canada has a highly developed financial services sector, so this report does not explore expansion into financial services as an option for Canada Post. As the decline in physical lettermail continues, there appears to be potential for the development of electronic products. Success in the development of digital mail products relies heavily on the degree of trust that customers have in their postal service. In 2012, Deutsche Post published a report laying out five scenarios for the potential development of the logistics industry to 2050. One of the key issues the report identified was the extent to which advanced logistics could encompass the safe transfer of information, as well as the reliable delivery of goods. Jürgen Gerdes, a member of the Deutsche Post DHL Board of Management responsible for mail, notes in the report that ensuring its customers’ trust has always been at the core of the company’s business model. “Guaranteeing the identity of the sender and recipient and the inviolability of the contents of the message is also the rationale behind its E-Postbrief secure electronic post product. This and other efforts the company is making to help safeguard the Internet will likely transform the company by 2050.”22 20 Brown, “Saving the Post Office and Postal Banking.” 21 Ibid. 22 Deutsche Post AG, Delivering Tomorrow. Find this report and other Conference Board research at www.e-library.ca
  14. 14. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 8  |  The Future of Postal Service in Canada—April 2013 Within a rapidly changing global communications market, postal operators around the world have to adapt quickly to changes in consumer and business demand. Therefore, business plans must be modified in order to build parcel traffic generated by e-commerce and move into digital services. Postal services generally do not view digital communications as a separate initiative, but rather as a means of transforming their business models to incorporate e-commerce and e-substitution. Finland, for instance, is experimenting with the concept of secure digital mailboxes. This system, called Netposti, is an alternative to a physical mailbox. Physical mail is opened, scanned, and sent as a PDF file to a secure digital mailbox. Citizens are provided with accounts tied to their social security numbers and e-mail addresses.23 Consumers receive an e-mail or a text message when their mail is ready to be viewed. Envelopes are analyzed, and items such as credit cards are filtered out for physical delivery. Scanned mail is also delivered to physical addresses, but residential mail services have been reduced to twice a week.24 Digital products are evolving within a highly competitive marketplace, and their potential contribution to the sustainability of postal service is uncertain. Finns are significant users of electronic services, and once the use of e-commerce began to take off, so too did concerns about credit card safety. By signing a cooperation agreement with the leading Finnish online payment provider, Netposti allows consumers to click an invoice button and receive a receipt of their online purchase directly to their secure Netposti account.25 Then there is Polish Post, which recently released a new line of digital products. Poland’s postal market has been opened up to full competition and the NeoKartka service was developed in response to customer demand for more digital mail services.26 This hybrid service allows customers to send greeting cards and postcards electronically for conversion to the physical form prior to delivery.27 In the past 10 years, Italy’s Poste Italiane has invested heavily in technology to bridge the physical and electronic worlds. Poste Italiane developed an advanced technological infrastructure where over 80 per cent of correspondence is sorted using automated systems.28 In addition, Poste Italiane has been able to expand its services and offer new products while utilizing various channels: electronic invoicing for government contractors, scanning and electronic archiving, and mobile virtual network operators (e.g., using mobile devices to pay bills and send mail).29 Canada Post is actively developing digital products. In 2011, it set up a distinct Digital Delivery Network in parallel with its Physical Delivery Network. Its digital product line now includes its epost system for the secure delivery of statements and payment of bills, the Canada Post Vault service for secure storage of personal and sensitive information, and Data and Integrated Market Solutions to support precision target marketing by Canadian businesses.30 Digital products, however, are evolving within a highly competitive marketplace. The international experience suggests that such products cannot replace lost lettermail business. But they do have the potential to generate some revenue for Canada Post that could contribute to offsetting the costs of maintaining the physical mail delivery system. Their potential degree of contribution is uncertain, so future digital revenues are not addressed within the revenue projections of this report. 26 Post Parcel, “Polish Post Launches Hybrid Postcard Delivery Service.” 27 Ibid. 23 United States Postal Service, Office of the Inspector General, The Postal Service Role in the Digital Age, 28. 28 United States Postal Service, Office of the Inspector General, The Postal Service Role in the Digital Age, 29. 24 Ibid. 29 Ibid., 30. 25 Ibid., 4. 30 Canada Post Corporation, Transformation, 6–11. Find this report and other Conference Board research at www.e-library.ca
  15. 15. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 9 E-Commerce and Parcels Parcels are the one postal product that is seeing growth driven by the digital revolution. People have become enthusiastic online shoppers. In Europe, e-commerce sales have doubled since 2005 and are expected to grow a further 65 per cent by 2015.31 But everything consumers buy needs to move physically from the producer, distributor, or retailer to homes and businesses. And consumers have developed high expectations in terms of the speed of delivery of the goods they have ordered online. The parcel business, unlike lettermail, is highly competitive, but parcel volumes have been rising worldwide. Postal services have been aggressively using their extensive sorting and delivery infrastructure to expand in this sector. In some cases, they are expanding beyond their national borders: Spain’s Correos, for instance, is using a partnership model to enter Asian markets; the Netherlands is expanding its parcel services into new geographies through acquisitions; and Poland’s InPost is installing 100 self-service parcel terminals in Brazil.32,33 To accommodate the rise in parcel volume, numerous international postal services are expanding their parcel centres and investing in new technologies to help with the rise in parcel demand. Germany plans to build a new parcel centre that will be 140,000 square metres— the largest parcel centre in the country. The United Kingdom’s Royal Mail has announced two new parcel depots by fall 2013.34 Canada Post has implemented measures to expand its parcel volume, both through its postal operations and through its Purolator courier service. It has made concerted efforts to enhance parcel services to shippers. In 2011, it offered on-demand parcel pickup for small businesses and, in 2012, provided enhanced web services for online retailers—including seamless management of returns. With approximately 40 per cent of parcel deliveries to Canadians originating internationally, Canada Post has negotiated bilateral agreements, notably with the United States and China, to increase its share of this inbound traffic. Canada Post also has made extensive investments in improved sorting equipment for packages; built new facilities, including a 700,000 squarefoot plant at Vancouver International Airport; increased real-time tracking through portable scanners for employees; and added to its capacity for motorized delivery to handle growing package volumes.35 The potential growth in parcel business and its impact on overall volume and revenue is addressed within the quantitative framework developed for this report. Changes to Service Standards As lettermail continues to decline, postal operators are looking for ways to reduce costs by changing their delivery standards. The most frequently considered option is to reduce the frequency of delivery. One study suggests that approximately 20 to 30 per cent of operational costs can be reduced simply by determining the requirements of receivers and aligning these requirements with the business model.36 In particular, the study found that if delivery was reduced from six days a week to three days, the resulting labour cost savings could cut their total costs by between 5 and 10 per cent.37 Several postal operators have moved in this direction. The U.S. Postal Service announced in February 2013 that plans to stop delivering letters on Saturdays, starting in August 2013, could cut costs by about US$2 billion a year. (Parcels would continue to be delivered on Saturdays and post offices would remain open.)38 Singapore and Italy have already migrated from 31 Wilson, “Click Thinking,” 20. 32 Barton and Narang, Achieving High Performance in the Postal Industry, 6. 35 Canada Post Corporation, Transformation, 7–9. 33 Post Parcel, “InPost Alliance to Bring 24-Hour Parcel Terminals to Brazil.” 34 Barton and Narang, Achieving High Performance in the Postal Industry, 6. 36 van Heel, Airoldi, and Bos, The Postman Always Brings Twice, 6. 37 Ibid. 38 Nixon, “Trying to Stem Losses, Post Office Seeks to End Saturday Letter Delivery.” Find this report and other Conference Board research at www.e-library.ca
  16. 16. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 10  |  The Future of Postal Service in Canada—April 2013 six to five delivery days a week.39 Post Danmark has chosen to deliver bulk mail three days a week and alternate between areas. Meanwhile, Finland has taken a hybrid approach on a trial basis, reducing delivery frequency in certain regions to twice a week while also delivering mail electronically.40 When customers were asked if this service was meeting their needs, responses indicated a high degree of satisfaction.41 Potential changes to service standards in Canada, including reduced days of delivery, are examined in detail later in this report. Conclusion Canada’s experience is not unique. The situation in the United States is far more severe: the U.S. Postal Service reported a loss of US$15.9 billion in the fiscal year ended September 30, 2012, more than triple its US$5.1 billion loss in the previous year.42 Postal operators around the world are being forced to deal with the same pressures on traditional mail volumes. Some have dramatically reshaped their business models, moving their core operations into new lines of business or new markets. Others have focused on adding revenue through complementary digital products and growth sectors such as parcels, while also exploring ways to sustain their postal networks through investment in technology and changes in service standards. The clear message from the international experience is that dealing with the technology-driven decline of lettermail requires significant changes to the traditional postal business model. In addition, while management initiatives can drive significant innovation and efficiencies, the scale of the challenge ultimately requires policy decisions by governments to shape the future course of postal service within their jurisdictions. 39 Singapore Post, SingPost Implements 5-Day Mail Collection and Delivery Service. 40 van Heel, Airoldi, and Bos, The Postman Always Brings Twice, 7. 41 Ibid. 42 United States Postal Service, Postal Service $15.9 Billion Loss Highlights Urgent Need for Legislative Reform. Find this report and other Conference Board research at www.e-library.ca
  17. 17. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Chapter 3 The Competitive Environment in Canada Canada Post maintains regular contact with its largevolume customers, and the views of this sector are well understood by management. However, because many of these businesses are heavily focused on particular products, their strategic decisions will have a disproportionate impact on the sustainability of postal service. Therefore, the research for this report included interviews with a representative sample of major customers across Canada Post’s business lines as well as a review of relevant literature. Both the experience and the intentions of major customers offer insights into the viability of future options for postal service. Chapter Summary Major mailers in Canada, including governments, are making concerted efforts to reduce their use of postal services by encouraging consumers to switch to electronic alternatives for receiving bills, statements, and payments. Advertising mail faces intense pressure from the explosive growth of online advertising as well as e-mail and mobile alternatives. As Canadians seek more information online, demand for hard-copy publications is declining, and publishers are moving toward digital replicas aimed primarily at tablets and mobile devices. The overall decline in mail volume is driven by a variety of factors related to the ways that Canadians use the mail. E-commerce is creating a rapidly growing demand for parcel delivery services, and while Canada Post must compete in this business, it is seen as having a significant convenience advantage. T Transaction Mail he overall decline in mail volume is driven by a variety of factors related to the different ways that Canadians use the mail. This chapter looks at the competitive environment for each of the major segments of mail volume: transactions, advertising, publications, and parcels. Transaction mail is the product that is experiencing the most rapid decline in use by major mailers. While Canada Post holds a monopoly on lettermail, this monopoly product is nonetheless subject to growing competition, primarily in the form of digital substitutes. Specific threats to transaction mail volumes include transmission of statements, bills, payments and other documents to customers; payments by customers; business-to-business invoicing and payments; and e-mail and instant messaging. Find this report and other Conference Board research at www.e-library.ca
  18. 18. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 12  |  The Future of Postal Service in Canada—April 2013 Transmission of Bills and Statements to Customers Many Canadians still receive paper bills by mail. From the customer’s point of view, receiving bills has no cost and is convenient. For companies sending statements and bills, however, postal service is a major expense and digital alternatives offer large cost savings. An executive at a major bank said the bank began encouraging customers to convert to electronic delivery five years ago, and intensified its efforts two years ago. Customers are currently converting at about 1 per cent per month, and more than half now receive their statements electronically. A major publishing firm said that its web-based transactions in the first three quarters of 2012 were up 20 per cent from the same period in 2011. The firm also said that the electronic share of the company’s transactions has grown more than tenfold in the past five years—from 2 per cent to more than 25 per cent. Conversion to electronic delivery is being positioned as offering greater convenience to the customer, as well as cost savings to the mailer. A growing number of major mailers have begun charging customers who want to continue receiving paper bills. This has prompted an advocacy campaign by the Canadian Association of Retired Persons, which has focused on the $2 per month fees now being levied by companies that include Bell Media, Rogers, TELUS, and TD Bank.1 It is becoming common for newer entrants into the telecom sector to default to online bills and charge a fee for paper bill service, adding pressure for incumbent providers to do the same. 2 Imposing a cost on customers for paper delivery can only accelerate the conversion to electronic transmission. Not all major customers are cutting transaction mail to the same extent. But conversion to electronic delivery is being positioned as offering greater convenience to the 1 Canadian Association of Retired Persons (CARP), Paper Bill Surcharge Advocacy Update. 2 Roseman, Bell Wants to Charge Web Clients $2 for Paper Bills. customer, as well as cost savings to the mailer. The 2011 postal labour disruption provided a huge incentive for both sender and receiver to convert. Those who made the change at that time generally have not reverted. Mailers still find physical mail more effective for certain kinds of transactions such as subscription renewals, but they will continue to encourage conversion to electronic transactions for cost reasons. As one mailer we interviewed put it, “We would love to do all electronic, but that’s certainly not realistic.” The current pace of conversions may level off, but the ultimate share of customers who will refuse conversion is not clear. Mailers who are still heavily dependent on physical mail confirmed that this is linked to the older demographics of their customer base. One publisher said subscribers to titles geared to older, rural, and female readers show little interest in electronic transactions— but for those aimed at younger male readers, web transactions are “off the charts.” Government Mail The Government of Canada is both Canada Post’s owner and one of its biggest customers. Like other major mailers, the federal government is seeking to cut costs by reducing its use of postal services. In April 2012, for instance, the government announced that it would phase out the use of paper cheques by April 2016 and instead make payments to Canadians by direct deposit. Public Works and Government Services Canada (PWGSC) has set the cost of producing a cheque at $0.82, compared with only $0.13 for making the same payment by direct deposit. This initiative is expected to save the government about $17.4 million a year, starting in fiscal 2014–15. Once the process is complete, PWGSC said that “cheques will only be issued under exceptional circumstances; for example, when Canadians do not have access to a financial institution because they live in a remote location.” 3 This means that by 2016, the federal government, as a Canada Post customer, will use its wholly owned postal service to deliver only a tiny fraction of its 300 million 3 Public Works and Government Services Canada, Government of Canada Increasing the Use of Direct Deposit. Find this report and other Conference Board research at www.e-library.ca
  19. 19. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 13 annual payments: the recipients will be those people living in the most remote and therefore costliest locations for Canada Post to serve. Similarly, the Canada Revenue Agency (CRA) has decided to stop mailing out the traditional printed income tax package in 2013, telling taxpayers who want to do their taxes on paper either to download the forms from the CRA website or pick them up at their nearest post office. The CRA said that only 35 per cent of taxpayers still use paper forms and that, in 2011, 1.3 million printed packages went unused. The agency estimates that processing paper returns also costs about four times more than an electronic return.4 Payments by Residential Customers Financial institutions have steadily increased the number of options for consumers to pay their bills. Automated teller machines created more locations that consumers could access to pay their bills at any time. And then telephone and online banking enabled the convenience of payment from home or office. Canadian consumers appear to have been enthusiastic adopters of electronic bill payment, moving even more quickly than their counterparts in the United States.5 One positive source of demand for transaction mail has been “evidence mail” such as credit cards, driver’s licenses, and loyalty cards. However, some retailers are beginning to allow the printing of loyalty cards—at least for temporary means (prior to receiving the official card in the mail). This suggests that a shift toward a complete replacement is possible. In the slightly longer term, efforts by Google, PayPal, and others to replace the physical wallet with a “digital wallet” using a smartphone could further undermine the mail volume that is generated by evidence mail. So far, take-up has been slow to take advantage of the digital wallet—partly due to relatively few smartphones housing the required near field communication (NFC). 4 Dubinski, “The Canada Revenue Agency’s Move Angers Seniors’ Advocates.” 5 However, many popular recently released smartphone models do include NFC chips. On the other hand, it is not entirely clear if these technologies ultimately will lead to the replacement of physical cards altogether or just dispense with the need to carry them (which is the initial objective). Business-to-Business Invoicing and Payments Many businesses still prefer paper invoices and payments in order to maintain records for tax and audit purposes, which generates demand for lettermail. Data from our mailer interviews have suggested that some businesses will continue to shift away from this practice, although the shift may not occur as quickly as it will for residential customers. Business use of the mail for invoicing and payments was explored in more detail through the focus groups and polling conducted for this report and is discussed in a later chapter. E-Mail/Instant Messaging for Two-Way Communications While there are still nearly one-fifth of households without Internet access in Canada, the use of e-mail or other electronic means as a substitute for two-way lettermail communications has largely taken its course. Advertising Mail Addressed and unaddressed Admail offer different levels of service at different price points. Addressed Admail can be considered a premium service that allows for better targeting of individuals and greater certainty of being read. Unaddressed Admail allows less targeting, but at a lower price point. Both types of Admail face competition from the same broad range of advertising alternatives, albeit to different degrees. Advertising is an intensely competitive business, with customers constantly looking at alternatives that either can deliver better responses at the same cost or similar outcomes at lower cost. Organizations also are seeking to reduce some of their environmental impact by using less paper. Scotiabank, for instance, reported that its use The Canadian Press, “Mobile Banking.” Find this report and other Conference Board research at www.e-library.ca
  20. 20. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 14  |  The Future of Postal Service in Canada—April 2013 of paper for marketing direct mail plummeted from 165 tonnes in 2010 to 92 tonnes in 2011—a drop of 44 per cent in a single year.6 In the advertising business, Canada Post has some unique attributes that enable it to charge premium rates for specific markets. One major retailer, for example, said in an interview that it heavily uses flyers, but chooses Canada Post for only about 10 per cent of its total volume. Canada Post’s universal delivery network enables the retailer to connect with certain customers that it would otherwise be unable to reach or target, but Canada Post’s costs are more than triple that of distribution via newspaper. Another mailer we interviewed cited Canada Post’s ability to target customers down to the route level as key, but noted that newspapers are beginning to improve service in this area. Another praised Canada Post’s unique degree of access to customers in apartment buildings and condominiums. For large firms, mail is but one channel among many marketing options, and cost is critical. One mailer told us: “If I can find a distributor who can do 80 per cent of what we can do with Canada Post, I’ll move.” As sources of competition for Admail in the future, magazines, TV, radio, and newspapers (for ad placement) are not considered to be increasing threats. In fact, the difficulties that magazine and newspapers have had in terms of their own physical distribution may present a mild opportunity. Meanwhile, the decline in newspaper distribution also provides a particular opportunity for unaddressed Admail, which competes almost directly with newspapers in distribution. The total amount of advertising spending in Canada (on sources other than Admail) is forecast to grow from just under $11 billion in 2011 to over $12 billion in 2014.7 What is striking is the rise of Internet advertising spending as a share of the total, which is forecast to increase from 25 to 35 per cent over the same period, overtaking TV for the top spot. (See Chart 2.) Chart 2 Canadian Advertising Expenditure Share of Total (per cent) Newspapers Radio Magazines Outdoor TV Internet Forecast 40 30 20 10 0 2000 02 04 06 08 10 12f Source: ZenithOptimedia. Like all forms of traditional advertising, Admail (both addressed and unaddressed) faces competition from the various forms of Internet advertising, more specifically: Online display. Advertising spending on online display (such as web banners) reached $800 million in 2011 and is expected to exceed $1.1 billion in 2014. Online display advertising has grown significantly more sophisticated in its ability to target individuals according to demographics, location, search history, etc.—contributing to its ongoing growth. And while display ads may not have the “staying power” of physical flyers (which can sit on a coffee table as a reminder), they are increasingly able to perform this role by appearing on websites that are visited by individuals multiple times per day. Moreover, the lower visibility is offset by low cost per ad relative to Admail (roughly $20 to $50 per thousand visitors).8 Online video. The ad spend on online video is relatively small, sitting at $80 million in 2011. But this is expected to quadruple by 2014 due to increasing use of streaming video. This is considered to be a direct threat for TV advertising spending. Internet classified. One of the “oldest” forms of Internet advertising spending, Internet classified hit $600 million in 2011. But as a result of its maturity, 6 Scotiabank, Paper—Measuring and Reducing Paper Consumption. 7 Barnard, ZenithOptimedia Releases September 2012 Advertising Expenditure Forecasts, 47. 14f 8 ZenithOptimedia, Americas Market MediaFact, 62. Find this report and other Conference Board research at www.e-library.ca
  21. 21. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 15 it is considered to have more or less peaked as it has captured most of the market from newspapers and other traditional sources. Online search. The largest share of Internet ad spend goes to online search, reaching $1.1 billion in 2011. The spending is expected to grow at an accelerating pace, eventually exceeding $1.8 billion in 2014. This is partly due to the growing sophistication of online search as a tool to target individuals according to a range of characteristics. (See Chart 3.) E-mail. Spending on e-mail advertising has declined from its modest peak of $20 million in 2006. Despite its superficial similarities to addressed Admail, e-mail is, for the most part, not an effective substitute due to spam filters and generally low open rates. It is much cheaper, but also seen as less reliable because of the risk of fake or mistaken addresses. As well, there is uncertainty over whether a customer has received a message and when, if ever, the e-mail gets opened and read. One marketing executive we interviewed said that experiments showed that the optimal approach involved a combination of physical and electronic messages. Mobile. Mobile advertising spending (targeting smartphones and tablets largely through applications that users install) is currently small. But it is expected to become the fastest-growing segment of advertising spending (both within Internet spending and otherwise). This is due to the rapid adoption of mobile devices, the increasing amount of time that consumers spend using the devices, and the growing number of applications that consumers install for “free.” In many ways, mobile advertising is a direct competitor for both addressed and unaddressed Admail. That’s because consumers can be targeted not only by residential location but also by their physical location at a particular time of day for alerts regarding coupons, special promotions, entertainment events, etc. Moreover, like addressed Admail, mobile advertising can target individuals within a household better than most other forms of Internet advertising spending (due to the usually exclusive use of mobile devices). Chart 3 Canadian Internet Advertising Expenditure ($ millions) Display Search Video E−mail Classified Mobile Forecast 2,000 1,500 1,000 500 0 04 05 06 07 08 09 10 11 12f 13f 14f f = forecast Source: ZenithOptimedia. Publications Canada Post generates revenue through the distribution of publications such as magazines, newspapers, and newsletters. All are facing intense pressure from electronic alternatives, which will affect the expected revenue associated with their physical distribution. Growing competitive threats to the physical distribution of publications can be categorized in two general categories: General electronic content. As individuals spend more time consuming information online, their appetite for traditional physical periodicals has waned. The decline in physical newspaper and magazine circulation is a direct result of this. Canada Post has already felt the effects of this decline as its publication distribution volumes have fallen from a peak of 536 million in 2006 to 431 million in 2011.This trend is expected to continue. Digital replicas. To combat the decline in physical distribution, publishers have attempted to steer readers to corporate websites offering the same or similar content. More recently, the trend has been toward “digital replicas,” which offer not only the same content but the exact look and layout of the physical Find this report and other Conference Board research at www.e-library.ca
  22. 22. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 16  |  The Future of Postal Service in Canada—April 2013 rate structure. Another was blunter: “The way the rates are structured in Canada motivates me to do everything in my power not to use Canada Post.” Table 2 Canada Post Segment and Purolator Parcel Volumes and Revenues Canada Post 2003 2010 Purolator 2003 2010 Volume (millions) 162 143 129 143 Revenue ($ millions) 991 1,275 1,079 1,493 Yield ($/parcel) 6.12 8.92 8.36 10.44 Source: Canada Post Corporation. periodicals. These replicas are mainly intended for tablets, but can also be read on smartphones and personal computers. Digital replicas (as well as general electronic content consumed through tablets, e-readers, and smartphones) add potential for an even more rapid shift away from physical distribution of periodicals. While data for Canadian digital replica distribution are not available, the trend in the U.S. is indicative of what is to come. For example, 7 of the top 25 consumer magazines (rated by circulation) in the U.S. had digital replicas as of June 2012. Of the seven, two—Game Informer magazine and Maxim— have seen their digital replica distribution exceed 10 per cent of their total circulation.9 Other magazines, such as Reader’s Digest and O (the Oprah magazine), that do not necessarily target younger demographics have also released digital replicas, suggesting that this will likely be more than a niche phenomenon. Canada Post’s publication volume also is being affected by a shift in federal policy. The government used to subsidize postal rates for publications. Instead, it now offers a general subsidy to magazines. This has given publishers a strong incentive to encourage newsstand sales rather than mailed subscriptions—especially for magazines using high-quality glossy paper and inserts. On this subject, one publisher we interviewed pointed to what he called a “penalty box” (much higher rates for publications that weigh more than 200 grams) in Canada Post’s 9 Lulofs, The Top 25 U.S. Consumer Magazines. Parcels In Canada, as elsewhere, the parcel business is the exception to the downward trend. E-commerce is having a major upward impact on parcel volume. One e-commerce firm said its parcel volume is doubling every year, and it expects that growth trend to continue for at least the next five years. For e-commerce fulfillment, both the speed and frequency of delivery are important for customer satisfaction. That said, customers have shown little interest in paying extra for faster delivery options. Despite the fact that Canada Post’s monopoly does not cover parcel service, it has been sharing in this rising overall market. The Canada Post group actually competes for parcels through two vehicles, its postal segment and its Purolator courier business. On this score, Purolator has, to date, been more successful. (See Table 2.) In Canada, as elsewhere, the parcel business is the exception to the downward trend—e-commerce is having a major upward impact on parcel volume. One major shipper mentioned having moved from exclusive reliance on Canada Post to heavy reliance on a private sector competitor and then back to the Canada Post group. The factors in returning to Canada Post were its stronger on-time performance, reduction in the proportion of damaged shipments, and initiation of improvements such as signature service and the ability to track and trace shipments. As with other major mailers, the 2011 labour disruption was highly damaging, leading to lost sales as well as delayed shipments. Shippers, however, do have both short- and long-term alternatives and can factor the risk of labour disruption into their choice of delivery company. One Canada Post customer mentioned hedging its bets by signing a combination agreement with both Canada Post and Purolator. Find this report and other Conference Board research at www.e-library.ca
  23. 23. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 17 Canada Post is seen as having an important convenience advantage in parcel delivery. There is a strong desire for even better delivery options, including weekend delivery, more secure lockboxes, and a “guaranteed leave at door” option for low-value shipments. But shippers see Canada Post as providing much more convenient pickup locations than other parcel or courier companies for recipients who are not at home when a parcel is delivered. Other Trends Affecting the Competitive Outlook The rapid change in adoption of new technologies highlights the difficulty in projecting the change in mail volumes in even the near term. For example, global tablet sales are expected to have nearly doubled in 2012 to a total of 119 million units.10 In Canada, the trend is similar, with tablet sales up by 79 per cent in 2012.11 And most or all of this growth has come in addition to (not at the expense of) PC sales,12 indicating that tablets are substitutes for other consumer goods (such as newspapers and magazines) more than they are for PCs. Meanwhile, smartphones are becoming ubiquitous, and Canadians are changing the way in which they use their smartphones. Smartphone penetration in Canada reached 54 per cent of the mobile market in May 2012, up from 36 per cent in 2011.13 And among those smartphone owners, the average user is accessing mobile content more often.14 In other words, more people are buying smartphones and those who own them are using them more intensively. Despite the rapid rise in tablet and smartphone penetration, Canada is actually behind the curve in terms of wireless adoption and smartphone penetration. For example, the overall wireless penetration rate (the number of wireless 10 ITBusiness Staff, Global Tablet Sales Will Double to 119M. 11 NPD Group, Tablet Makers Climbing Apple’s Tree. subscribers, including smartphones and “dumbphones,” relative to the total population) is expected to hit 100 per cent in Canada within the next three years. However, this rate was already achieved in the United States in 2010. And the rate of smartphone penetration is significantly higher in countries such as Sweden, Hong Kong, and Singapore.15 What does this all mean for other forms of communication? These new technologies will inevitably attract a greater share of the total advertising spending as Canadians adopt and spend more of their time using them. Furthermore, they open the door for more sophisticated and targeted forms of advertising. For example, display advertising (both on traditional PCs and tablets/ smartphones) are becoming more “social” in that they are able to cater directly to users’ interests and current situations. This has, in part, allowed coupon sites to make big gains, as they are able to target their intended audience more precisely. Mobile technologies will inevitably attract a greater share of the total advertising spending as Canadians adopt and spend more of their time using them. Other highlights of the disruptive impact of mobile technology on all forms of print and other advertising include16 the following: Canadians aged 55+ are the largest growth segment of online users by age. The hours per visitor on social networking sites is up across the board (diverting attention from traditional media). YouTube videos per viewer were up 170 per cent in 2011, which is significant given the relative infancy of online video advertising. About 1.4 million Canadians scanned QR codes (a type of bar code) with mobile devices at least once a month in 2012, primarily for product info, but also for “clipping” coupons. 12 NPD Group, Optimistic Start to 2012 for Canadian PC Market. 13 J.D. Power and Associates, 2012 Canadian Wireless Total Ownership Experience Study. 15 Knowlton, Canada to Surpass 100 Per Cent Wireless Penetration Rate. 14 Hardy, comScore; “Smartphone Penetration Has Reached 45 Per Cent of the Canadian Mobile Market.” 16 comScore, comScore Releases the “2012 Canada Digital Future in Focus” Report. Find this report and other Conference Board research at www.e-library.ca
  24. 24. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 18  |  The Future of Postal Service in Canada—April 2013 Traditional print media and retailers are attempting to make use of these technologies to avoid being left behind. The trend of subsidizing digital devices in exchange for an ongoing subscription commitment is an example. Barnes and Noble now discounts its Nook e-readers and tablets when the customer commits to a digital New York Times subscription.17 The Times (U.K.) is making a similar offer to customers who purchase Google’s Nexus 7 tablet.18 17 Melanson, Barnes Noble Offers Discounted Nooks. 18 Smith, The Times UK Offers Digital Newspaper Subscriptions. Find this report and other Conference Board research at www.e-library.ca
  25. 25. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Chapter 4 The Outlook for Canada Post variables. This was, in large part, due to the rapid change in technologies and market dynamics—the overwhelming factors that have contributed to the change in mail volumes. However, the impact of changing prices and overall economic activity (that is, GDP) were determined to be significant. As such, our projections make use of price projections and GDP in order to project mail volumes. The rest are explained by our analysis of competitive threats (as well as opportunities). This is similar to the approach that was taken by the Boston Consulting Group for the purpose of projecting U.S. Postal Service mail volumes. Chapter Summary Our projection suggests that Canada Post’s advertising mail and publication volumes will decline 26 per cent, and transaction mail 27 per cent, between 2012 and 2020. Parcel volume will buck the downward trend and is projected to increase by 26 per cent by 2020. While the Crown corporation’s Postal Transformation initiative will have a significant positive impact, the annual operating loss for its Canada Post segment is projected to reach about $1 billion by 2020. T he Conference Board has combined competitive threat assessment with an econometric approach to project mail volumes and revenues by line of business. The econometric approach used time series data and tested a range of socio-economic indicators as explanatory variables. In addition, a panel set of international data was also tested. While there were correlations between demographic data (such as population shares by date of birth) and mail volumes, they were not significant as explanatory The Conference Board has a long-term forecast for NAICS industry classifications 491 and 492 from its national macroeconomic model. This forecast combines postal and courier GDP, so is of limited use for the purpose of projecting mail volumes by line of business. However, it is worth noting that the overall outlook for the combined industry is mildly positive, with real GDP expected to grow by approximately 1 per cent per year through 2017. This is primarily the result of the growing courier segment, which is expected to more than offset the overall decline in transaction and Admail. Although it became clear from the econometric analysis that growth in mail volumes has been decoupled from general economic growth, this is not to say that mail demand no longer depends on economic growth. Find this report and other Conference Board research at www.e-library.ca
  26. 26. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 20  |  The Future of Postal Service in Canada—April 2013 Rather, the rapidly evolving competitive factors have come to dominate, but mail volumes will still be positively affected by economic growth. The Conference Board was able to estimate elasticities with respect to economic growth and price for transaction mail, addressed Admail, unaddressed Admail, and publications. This was done through econometric modelling using historical price and volume data. A trend variable was introduced in order to account for the combined impact of the various external factors that have contributed to flat or declining mail volumes. In other words, the trend variable helped to normalize the data in order to help isolate the influence of GDP and price on mail volumes. Table 3 shows the coefficients that were estimated with the modelling. A coefficient of 1 indicates that volumes are expected to grow in equal proportion relative to the corresponding explanatory variable (all things being equal). A coefficient of less than 1 indicates less than proportional growth, while a negative coefficient indicates that volumes would decline with growth in the explanatory variable. The coefficients for parcel volumes were not derived from the econometric modelling, as the estimated coefficients were rarely shown to be significant. This is likely due to the fact that Canada Post is one of many competitors in the parcel business. In addition, the coefficients for publications were only borderline significant, as was the price elasticity coefficient for unaddressed Admail. Table 3 Mail Volume Coefficients With Respect to Real GDP Growth and Real Price Changes Real GDP Real price Transaction mail 0.82 –0.80 Parcels 1.25 –0.75 Addressed Admail 0.80 –1.00 Unaddressed Admail 1.18 –0.46 Publications 0.85 –1.00 Source: The Conference Board of Canada. Throughout the estimation process, price elasticities for transaction mail were consistently between –1 and 0 (inelastic). This is consistent with the evidence from the mailer surveys: the price of mail delivery was generally not a significant factor when determining mail volumes, and transaction mail service was considered to be good value for money. Meanwhile, addressed Admail customers were estimated to be a bit more price-sensitive, while unaddressed Admail customers were less so (partly due to the lower per unit price), with the caveat that the results from the modelling were only borderline-significant. The volumes for all lines of business were generally estimated to be influenced by economic growth in roughly equal proportion (with unaddressed Admail responding most significantly to economic growth). Note that a stronger response to GDP growth also means that volumes are expected to fall more quickly in recessionary periods. Volume and Revenue Projections The above coefficients were combined with a qualitative assessment of the impact of the competitive threats discussed earlier in order to project volumes and revenues by line of business to 2020 (with the exception of the 2012 projection, as explained below). The Conference Board’s Canadian Outlook Long-Term Economic Forecast was the source of GDP and the consumer price index (CPI) (for deflating nominal price increases) forecasts. Transaction mail prices were projected to increase by the rate of CPI (approximately 2 per cent per year) after the year 2014 and beyond. Prior to that, the rate increases by $0.02 per year, on the basis of the $0.02 per year increase in the basic letter rate that has been approved through 2014. In addition, the quantitative and qualitative evidence suggests that while the basic letter rate has increased at a pace slower than inflation over the past two decades (or perhaps because of that), there is room for the price to grow without negatively affecting transaction mail revenues. Find this report and other Conference Board research at www.e-library.ca
  27. 27. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 21 Table 4 Projected Mail Volume to 2020, by Product (millions of pieces) 2012 2013 2014 2015 2016 2017 2018 2019 2020 4,070 3,888 3,725 3,596 3,460 3,324 3,204 3,082 2,966 110 113 117 121 124 128 131 134 139 Addressed Admail 1,229 1,186 1,148 1,108 1,065 1,023 986 948 912 Unaddressed Admail 3,320 3,202 3,094 2,984 2,870 2,756 2,654 2,552 2,455 414 400 387 374 359 345 332 320 307 Domestic transaction mail Domestic parcels Publications Source: The Conference Board of Canada. Other lines of business were projected to see price increases of approximately 2 per cent per year in nominal terms, roughly in line with the long-term outlook for CPI growth. The projection for 2012 was based solely on the volume and price trends through 2012 Q3. Through the first three quarters in 2012, domestic transaction mail volumes had declined by 6.3 per cent relative to the same period in 2011. However, the rate of decline worsened in Q3, with year-on-year volumes declining by 9.5 per cent relative to Q3 of 2011. In order to complete the projection for 2012, 2012 Q4 volumes were projected to change at the same rate as 2012 Q3 volumes had over the same quarter the previous year. This approach was taken in order to control for the fact that 2011 Q2 volumes were negatively affected by the strike. The same approach was taken for projecting volumes for the other lines of business. Transaction mail is projected to decline by 27 per cent between 2012 and 2020. Addressed and unaddressed Admail and publications are projected to decline by a similar 26 per cent. Only parcel volume bucks the trend, with projected volume up by 26 per cent over the same period. Given the low base of parcel volume relative to other products, this is not enough to change the overall downward trend in volume. (See Table 4.) The most recent volume figures in 2012 indicate an even more rapid decline than in previous years. There are too few data points to determine if this represents an acceleration of the trend. But this does suggest that some of the newer technological factors may be taking Chart 4 Projected Mail Volume to 2020 (millions of pieces) Domestic transaction mail Unaddressed Admail Domestic parcels Publications Addressed Admail Projection 5,000 4,000 3,000 2,000 1,000 0 2012p 13p 14p 15p 16p 17p 18p 19p 20p p = projection Source: The Conference Board of Canada. hold even more quickly than anticipated. Therefore, the rate of decline projected here may be conservative. (See Chart 4.) The Canada Post Group includes businesses such as Purolator that compete in an open market. The Canada Post segment includes transaction mail, Admail, publications, and the Canada Post parcel business. As shown in Table 5, the Canada Post segment accounted in 2011 for 78 per cent of the group’s total revenue and 80 per cent of its costs. One-time factors, including a labour disruption that shut down the postal system for 25 days and a pay equity decision from the Supreme Court of Canada, Find this report and other Conference Board research at www.e-library.ca
  28. 28. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. 22  |  The Future of Postal Service in Canada—April 2013 Chart 5 Projected Net Loss From Operations to 2020 Table 5 2011 Operating Results ($ millions) ($ millions) Canada Post segment Revenue 5,861 7,484 Costs 6,189 7,710 Operating income –328 Baseline with PT plan savings included Total –226 Source: The Conference Board of Canada; Canada Post Corporation. Projection 0 Baseline without PT plan savings −500 −1,000 −1,500 contributed heavily to the operating loss in 2011.1 Operating income includes the expense portion of pension and other employee future benefits, but excludes the longer-term impact of the significant deficit in Canada Post’s pension plan. This report and its scenarios focus exclusively on the Canada Post segment, because this is the business that is constrained by public policy. This projection of mail volumes leads to a very negative outlook for Canada Post revenues and for its bottom line. The start of our projection period includes the anticipated negative impact of a planned change in the accounting for current costs associated with providing future employee benefits. From this base, the Conference Board projected two scenarios. The first is a “business as usual” outlook that does not include the impact of the Postal Transformation initiative, either in terms of savings realized through 2012 or those that are expected through 2017. This first scenario effectively maintains the labour force at its current level, meaning that retirees and other leavers are replaced on an ongoing basis. The second scenario includes both the realized and expected impact of the Postal Transformation (PT) initiative. This recognizes the impact of the actions that Canada Post management already has launched, with the objective of significantly improving efficiency and reducing costs through the application of leading-edge technologies. This scenario is the one used as the baseline against which all additional options are measured. (See Chart 5.) 1 Canada Post Corporation, Transformation, 5. 2012p 13p 14p 15p 16p 17p 18p 19p 20p p = projection Source: The Conference Board of Canada. The Postal Transformation initiative will have a significant impact in improving financial performance, but the Conference Board projects that the annual operating loss still will reach about $1 billion by 2020. It is possible that Canada Post could offset some of these losses in its current core business lines through increased profits in other activities. These activities include growth of its existing Purolator courier service, development of electronic postal products, or entry into new lines of business that could leverage its expertise and physical assets. Despite its major investments in technology to cut costs and improve efficiency, Canada Post’s annual operating loss is projected to reach $1 billion by 2020. However, Canadians should be careful not to rely on competitive, profit-oriented activities within the broader Canada Post group as a means of financially sustaining postal services. First, there is no way to guarantee sustained profitability in rapidly evolving markets. Second, any Canada Post-owned businesses participating in open markets must generate competitive financial returns. If these operations are required to siphon capital into subsidies for postal services, they are more likely to underinvest and fall behind. Third, there is no public policy rationale for a government-owned business to engage Find this report and other Conference Board research at www.e-library.ca
  29. 29. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 23 in a competitive sector solely to generate profits to subsidize public services. Whether subsidies are delivered by having governments forego dividends on investments or by handing over cash from general tax revenues, the net effect on the public purse is the same. efficiency. The projections developed by the Conference Board suggest that incremental improvements are no longer sufficient to sustain the existing postal network and level of service in the face of growing competitive pressures from electronic technologies. Until 2011, Canada Post was able to deliver on its service obligations to Canadian residential and business customers while also meeting its legislated mandate to operate at a profit. This financial performance has required steady increases in stamp prices and relentless efforts to improve Instead, addressing the looming financial shortfall requires a fundamental examination of which kind of postal services Canadians still need, and which changes to the postal business model could enable those services to sustain themselves over time. Find this report and other Conference Board research at www.e-library.ca
  30. 30. For the exclusive use of Tracey Lauriault, tlauriau@gmail.com, Carleton University. Chapter 5 Expectations and Use of Postal Service Chapter Summary Household and small business customers are using mail less frequently. Almost half of households send two pieces of mail or less each month. Both groups of customers see the current price of a stamp as good value, and are willing to tolerate slower service than they now receive. What matters most is the certainty that mail will be delivered to its intended destination. E-commerce is increasing the demand for parcel delivery. However, having to travel to pick up parcels when no one is home to accept delivery is a growing source of frustration. Many customers, especially in rural areas, would be significantly inconvenienced if the distance to the nearest postal outlet was doubled. But most are highly satisfied with the retail service they receive, whether from a corporate or franchised outlet. Most Canadians believe that despite the spread of electronic communications, they always will need postal service and recognize the need for some degree of change. T his chapter describes the responses of Canadian residential and small business customers to questions about their expectations and actual use of postal service, about their perceptions of the challenges facing Canada Post, and about how they might react to various potential avenues for addressing those challenges. How the Use of Postal Services Is Changing The surveys confirm that traditional forms of paperbased communications are increasingly being overtaken by electronic forms of communication. Almost half of households surveyed (47 per cent) said they are sending less mail today than three to four years ago. Slightly more (49 per cent) said they are sending about the same amount of mail. Only 3 per cent claimed to be sending more mail. As for incoming mail, just over half of those surveyed (51 per cent) said that their household currently receives about the same amount of lettermail that it used to “three to four years ago.” However, one-third claimed that their household receives less mail than it used to, while half that number (17 per cent) said they receive more. Find this report and other Conference Board research at www.e-library.ca
  31. 31. © The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada  | 25 When asked to estimate how many letters, cards, bill payments, or other regular mail their household would send out in an average month, 17 per cent of respondents said “none”; and 30 per cent said their household sent an average of either 1 piece (16 per cent of respondents) or 2 pieces (14 per cent) through the system. Taken together, these results suggest that almost half of all Canadian households send no more than two pieces of mail through the postal system each month, with close to one in five households claiming they don’t send any. At the other extreme, 9 per cent indicated they sent more than 10 pieces each month, and 4 per cent said they sent 20 or more pieces. (See Chart 6.) Not surprisingly, businesses on average send considerably more mail than households, and the larger the company, the more mail it sends. (See Table 6.) Chart 6 Estimated Monthly Lettermail Volume, Residential 20 15 10 5 0 1 2 3 4 5 Declining use is also evident in terms of the amount of mail received by small businesses. Forty-six per cent claimed they were receiving the same amount of mail today as they had in the last three to four years. However, 40 per cent said they were receiving less, and only 13 per cent said they were receiving more. Financial Transactions Patterns of mail use are connected with how businesses and households handle financial transactions. The residential segment’s relatively low and declining use of the postal system for Canada Post’s traditional lettermail product is evidenced by answers to questions asking respondents how they typically pay for monthly household expenses, such as credit card and utility bills. This was followed up by a question asking how many of those kinds of monthly household expenses they pay online. Fully three-quarters of those surveyed claimed they don’t pay any of those monthly household expenses using the mail system. (See Chart 7.) (number of pieces per household; percentage of respondents) None Like households, businesses’ use of the system seems to be declining. Just over one-third of businesses surveyed claimed their business was sending out less mail than they were three to four years ago. Almost half (46 per cent) claimed their business was sending the same amount, while 14 per cent claimed they were sending more mail. Looking ahead over the next three to five years, a majority (73 per cent) expect their business to use Canada Post’s regular mail service “about the same” as they do now. However, the number that expects use of the system to decline is double the number of those who believe their use of regular mail is likely to increase. 6−10 11−19 20 Note: Respondents were asked “Approximately how many letters, cards, bill payments, or other regular mail do you think your household would send out through the postal system in an average month?” Source: Genesis Public Opinion Research Inc. Table 6 Business Lettermail Volume (number of pieces; number of employees; per cent) Number of full-time employees Number of Pieces 2–5 6–10 11–24 25–50 51–100 25 47 29 20 12 10 25–50 30 25 27 16 9 51–100 12 22 15 23 14 100+ 11 24 38 50 67 Source: Genesis Public Opinion Research Inc. Find this report and other Conference Board research at www.e-library.ca

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