Home mail delivery vs. community mailboxes

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Wednesday September 21 2016

On December 11, 2013, Canada Post Corporation (CPC) announced a five-point plan to reduce costs by about $1 billion per year by 2020, which included a scheme to eliminate home mail delivery in Canada. In addition, the plan called for price increases, greater privatization of post offices, the introduction of new work methods and reductions in employee compensation costs. When CPC announced this plan, it stated "the implementation of this plan means Canada Post can return to financial sustainability by 2019". [1] It was an odd statement to make given that CPC had reported profits of $94 million in the previous year (2012).

CPC justified its plan of cuts based on a projection that the corporation would lose approximately $1 billion per year by 2020. This projection, which turned out to be wildly inaccurate, had been provided by the Conference Board of Canada in its April 2013 paper, The Future of Postal Service in Canada. The Conference Board paper was paid for by CPC.

Almost everything that Canadians were told about Canada Post's Five-point Point Plan - from the Conference Board projection used to justify it to the description of the impact it would have on people – has turned out to be false or a distortion of reality.

 

Conference Board of Canada Projection

The Conference Board arrived at the $1 billion calculation by assuming CPC would incur financial losses beginning in 2012. Altogether, the Conference Board projected a cumulative loss of $950 million for the Canada Post segment between 2012 and 2014. But how did CPC really do?  As seen in Table 1, CPC did not experience catastrophic financial losses in the years immediately following the publication of the Conference Board report. In fact, CPC actually reported a profit from operations during this period.

 

Table 1

CPC Performance versus Conference Board Projections

Canada Post Profit (loss) From Operations ($millions)

 

2012

2013

2014

Conference Board projection

(250)

(300)

(400)

Canada Post Result*

+77

(269)

+204

 

*As reported in Canada Post annual reports

It shouldalso be noted that the 2013 results were heavily influenced by CPC applying new and revised International Financial Reporting Standards. Without the amendments to International Accounting Standards (IAS) 19, CPC would have reported very significant profits.

In addition to its faulty financial projections, there are other reasons to question the Conference Board report and the wisdom of taking decisions, such as eliminating home mail delivery, based on this report.

The Conference Board's paper contains errors with respect to volume projections. It estimated a drop in lettermail volumes of 9.5% for the fourth quarter of 2012. The actual reduction in volumes was almost half of this prediction. The report also significantly underestimated parcel volume increases at CPC.

Finally, perhaps the biggest problem with the Conference Board's paper is what it did not address. While the report noted that other postal administrations are responding to reduced letter volumes by expanding into financial and banking services, it did not consider the feasibility of this option for CPC.

 

Canada Post's Financial Projections and Statements

CPC does not have a very good track record in predicting its financial performance.  There appears to be a consistent pattern of making inaccurate and negative projections.

 

Table 2

CPC Overall Financial performance versus CPC Corporate Plan ($millions)

 

2009

2010

2011

2012

2013

2014 

 

2015 

 

CPC Consolidated

net profit

 

281

439

(188)

94

(29)

198

99

CPC Plan

 

71

48

95

20

(256)

(206)

18

Source: CPC Annual reports and Corporate Plans

 

As seen in Table 2, with the exception of 2011, CPC has repeatedly and dramatically underestimated profits. For the five years 2009-10 and 2012-14, CPC estimated that it would show total losses of $323 million when, in fact, the corporation reported total net profits for these five years of $983 million, a net difference of $1,306 million.

It is important to note that CPC's deficit in 2011 can be explained by two one-time events that in no way reflect the ongoing financial well-being of the corporation. In May 2012, CPC released its 2011 Annual Report in which it reported a net loss of $188 million. This included a $63 million one-time pension adjustment attributed to past service costs, and one-time costs due to CPC losing a pay equity complaint before the Supreme Court of Canada.

The Court's decision required the corporation to make retroactive payments to administrative staff for the period 1983-2002. The one-time cost of this payment was estimated to be in the range of $170 – $250 million. These two one-time events, coupled with the financial impact of the strike-lockout of that year, estimated to be $58 million, more than account for the financial losses incurred in 2011.

Consequently, there was no reason for CPC to assume that it was facing financial problems that would justify eliminating home mail delivery, an extreme measure by any standard with significant costs to Canadians, Canadian society and Canada Post.

 

Costs to CPC

Canada Post hasn't always believed that converting everyone to CMB delivery would save money.  In response to a question about going to centralized delivery, former Canada Post President Moya Greene said:

 "It's true that changing door-to-door delivery to a modified lot-line delivery would reduce many of the associated costs. As you probably know, mail is now delivered to community mailboxes in new urban developments. This delivery eliminates most of the stairs and other access impediments. However, we believe that any saving would be offset by the cost to implement the changes. We must also consider the residents who currently receive door-to-door delivery. As we are in a competitive environment for all our products and services, we must ensure customer satisfaction to grow our business."[2] [Emphasis added]

Was Greene wrong?  Do we have enough information to even know? What we do know is that the Canada Post's corporate plan for 2015 to 2019 stated that the 2015 capital budget for processing changes and standardizing the mode of delivery through CMBs would be $194 million.  We also know that Jacques Côté, Group President of Physical Delivery at Canada Post, indicated that the cost of CMB delivery is more than $200 per address. In a letter, Mr. Côté notified the Upper Lakes Group of plans to charge developers a one-time fee of $200 per address to install and activate CMBs and noted that this fee was only a "partial cost recovery initiative". [3] On the savings side, CPC has stated that it would save $400 to $500 million a year on full implementation of its CMB program. [4] Unfortunately, we have to take CPC's word for it, which we are reluctant to do because of the corporation's consistent pattern of providing misleading information.

There are additional reasons for questioning the costs associated with moving to CMB delivery. Canada Post's most recent annual report stated that the corporation would focus on growing revenues in its parcels and direct marketing businesses. However, it looks like it may be very difficult for CPC to grow direct marketing revenues if it centralizes more delivery. A recent survey of 5,000 households, commissioned by the Office of the Inspector General of the United States Postal Service, found that door-to-door customers were less likely to throw away admail without reading it than customers with curbside or centralized delivery. These customers were also more likely to read their admail and respond, with two exceptions. Door-to-door and centralized delivery customers had the same "toss without reading rate" for admail with a coupon. There were similar results for admail from a local business where a customer had a pre-existing relationship.

The Office of the Inspector General has recommended that the U.S. post office step up its customer research in this area.  It would be wise for CPC to do likewise.

 

Costs to Canadians and Canadian Society

CUPW outlined the costs to Canadians and Canadian society of converting home mail delivery to CMB delivery in a 2015 paper prepared for the 23nd Conference on Postal and Delivery Economics.  The union has appended this paper, which details the costs that would be borne by the public, seniors, people with disabilities, municipalities, community associations, mail recipients, the environment and the Canadian healthcare system (See Appendix A, pages 11 to 21).

 

The numbers

When CPC announced the cuts to home mail delivery, it said that only one third of households got door-to-door delivery. The underlying message was that only a pampered few received this service.  Many people took this to mean that two-thirds of households didn't have home mail delivery. In fact, close to two-thirds (63%) received some form of home delivery at the time.[5]

  • 33% received door-to-door delivery
  • 25% got mail delivered to the entrance of their apartment
  •  5% got delivery to their homes by way of a rural mailbox
  • Only 25% of households received delivery to a community mailbox, group mailbox or kiosk.
  • 12% got their mail through a postal box or by general delivery at a post office.

 

Between 2014 and 2015, CPC took home mail delivery away from 830,000 homes. Today, 3 out of every 5 households (57%) get home mail delivery.

  • 27 % of households receive door-to-door delivery
  • 26% get mail delivered to the entrance of their apartment building
  • 4% get delivery to their homes by way of a rural mailbox
  •  Only about a third (32%) of households have their mail delivered to a CMB, group mailbox or kiosk.  
  • 11% get their mail through a postal box or by general delivery at a post office. [6]

 

Conclusion

Our analysis shows that CPC's financial situation is not the disaster predicted in Canada Post's corporate plans or the 2013 Conference Board paper. In fact, the corporation's financial performance has consistently been vastly superior to management's predictions and official corporate plans. CPC has made millions overall in recent years. As a result, there is no real need for the corporation to take the drastic step of eliminating home mail delivery. In addition, there are significant outstanding questions about what it would really cost CPC to convert everyone in the country to CMB delivery, plus questions about how much the corporation would actually save. Futhermore, most stakeholders in Canada are opposed to ending door-to door-delivery and have identified a large number of problems and costs associated with the move to CMBs, especially for municipalities, seniors, people with disabilities and the Canadian health care system. Given the social and financial toll of eliminating home mail delivery and the current economic viability of CPC, there is no good reason to eliminate home mail delivery or delay the restoration of door-to-door delivery to people who lost it as a result of Canada Post's Five-point Plan.

CUPW estimates that the cost of restoring delivery would be about $50 million in the first year.  The union is available to outline its costing method upon request.  

 

Recommendations:

That Canada Post "permanently" end its plan to convert home mail delivery to CMB delivery.

 

That Canada Post restore home mail delivery to people who have lost it since the cuts were announced in 2013.

 

Failing this, that the government commission an independent firm to assess the economic and societal costs of converting to CMB delivery.


[1] Canada Post, 2013, https://www.canadapost.ca/cpo/mc/aboutus/corporate/ap.jsf?LOCALE=en

[3] Jacques Côté, Group President, Physical Delivery, Canada Post, Letter to President of Upper Lakes Group, October 18, 2012

 

[4] Canada Post, Canada Post unveils Five-point Action Plan: Plan will return system to financial sustainability by 2019 and ensure continued role of enabling trade and commerce, December 11, 2013, https://www.canadapost.ca/web/en/blogs/announcements/details.page?article=2013/12/11/canada_post_unveils_&cattype=announcements&cat=newsreleases

 

[5] Canada Post, Annual Report 2012

[6] Canada Post, Annual Report 2015