Cashing in on mail

Profits are up—yet rates are rising again. Does Canada Post need a radical rethink?

Cashing in on mail

Jean-Claude Parrot, the president of the Canadian Union of Postal Workers for 15 years, was a most unusual kind of public figure: a celebrity mailman. Parrot made headlines in the ’70s and ’80s, negotiating the public sector’s first paid maternity leave and spending two months in jail for opposing back-to-work legislation. Then, postal strikes were big news.

Not anymore. For almost five weeks last autumn, 2,100 people were on strike, fighting for better sick leave and disability benefits, but those talks and the Dec. 21 settlement went unnoticed. Canadians’ waning affections for the institution won’t be helped by a recent report from the Canadian Federation of Independent Businesses that showed Canada Post workers earn on average 16.9 per cent more annually than comparable private sector employees, even though they work 10 hours less per week. “With better control over spending on wages and salaries,” the report read, “the organization has the potential to reduce prices, improve service and give taxpayers a higher return on their dollar.”

But reducing prices couldn’t be more at odds with Canada Post’s agenda lately. As soon as the calendar flipped to 2009, a slew of postal rate hikes took effect, many government-approved. On Jan. 12, the cost of sending a basic letter across Canada went up two pennies, to 54 cents. Delivering one to the States now costs 98 cents, also up two pennies. A letter mailed overseas comes to $1.65, a five-cent jump. And that’s just the beginning. Rates for domestic and international business reply mail (customer surveys, subscription renewals, payments, voting ballots) are going up. In late February, prices will rise for standard, non-standard and oversize letter mail by two to 10 cents depending on weight. Canada Post stands to make up to $100 million just from the basic letter increase, estimates Catherine Swift, president of CFIB. “That’s not chump change.”

More revenue is good news for the Crown corporation—though Canada Post has hardly been ailing. Since 1981 it has operated under the Canada Post Corporation Act, which requires it to be financially “self-sustaining.” For the past 13 years, the company has turned a profit, grossing $160 million in 2007, when it delivered a record 11.8 billion pieces of mail. (Each year, it pays a dividend to the federal government, $47 million in 2007.) While transactional or first-class mail has seen a slight dip in sales, parcel mail and direct marketing have grown, contributing to more than $7.4 billion in annual revenue. These will see rate hikes too. Canada Post insists it still offers some of the lowest domestic mail rates in the world, and spokesperson John Caines has said the hikes are needed to make up for rising fuel, transportation and labour costs, “so we can continue to provide the service that Canadians want.”

Swift doesn’t buy these explanations: gas prices are back down, she points out, and Canada Post keeps raising its employee salaries. “Get a grip on your wage costs. Don’t [say] ‘Well, we once again gave them a big increase so we’re going to take it out of your hide,’ ” she says. And given Canada Post’s swelling sales and income, she believes it’s audacious for the company to impose price increases on people suffering through a recession. “The timing really stinks,” says Swift. One small business owner in Toronto, Gail Bebee, worries she won’t be able to afford shipping her self-published book, No Hype: The Straight Goods on Investing Your Money, to customers. Last year she mailed several hundred for $2.65 apiece. This year, using that same packaging she will pay more—she just doesn’t know how much yet. “I have to find a suitable alternative envelope or I’m going to have to start charging customers for shipping,” if the difference is huge, she says, “because I just can’t eat that.” She won’t be the only one struggling; many small businesses will be affected, whether they’re mailing documents or delivering products.

Swift says that while Canada Post shouldn’t be a money-loser for the government, “it doesn’t need to be making big piles of money. It should be breaking even.” If the Crown corporation is going to hold a monopoly on postal services, it shouldn’t behave like the private sector, she argues. “I find it disgraceful that in the post office you can buy stationery and greeting cards,” Swift explains. “Either be a monopoly and provide narrow services . . . or compete with private companies. But you can’t have it both ways.”

A battle that has broken out between Canada Post and publishers may perfectly encapsulate the trouble the Crown corporation faces in navigating its commercial interests and public obligations. As of Jan. 12, Canada Post changed the way it charges publishers to ship magazines and other periodicals across provinces. In doing so, it raised the rates by one and three pennies respectively (per weighted bundle). The company believes the new distance-related pricing (DRP) is a more equitable way of administering postal fees. “The reality is, the farther an item has to move across Canada, the more times we have to handle it,” says Steve Johnson, director of pricing strategy. “This is a much fairer representation of how customers consume resources.”

For critics though, the rate hike represents nothing short of Canada Post abdicating its cultural responsibilities to deliver mail to all Canadians regardless of where they live. “This is a unique nation with respect to its postal requirements. We’ve got a thin little band of folks spread all over the place,” says Mark Jamison, CEO of Magazines Canada, which represents the industry (including Maclean’s). “We have to view our postal delivery system as part of the cultural and social mechanism that helps keep us together. It’s as important as building the railroad was.”

DRP may amount to punishing some Canadians for making their home in rural or remote places. “Are you going to charge somebody a different price to mail a letter based on where they live?” asks Deborah Morrison, publisher of the history magazine The Beaver. It’s based in Winnipeg, but 50 per cent of its readers live in Ontario and the rest are scattered around the country—a reality shared by many magazines. Charging readers extra isn’t fair, Jamison says. “You’re saying to the person in Brandon, Man., ‘You’re going to pay more than I’m charging someone in Toronto.’ That goes against cultural policy.” (Zonal pricing has existed in the U.S. for years, but repeated attempts to introduce rate hikes in the U.K. have been halted by calls that such a move would be discriminatory.)

DRP comes at an inauspicious time. As of March 31, Canada Post will also withdraw its $15 million in annual funding for the Publications Assistance Program. Since before Confederation, the postal subsidy program, administered with Heritage Canada, has helped mitigate the expense of delivering nearly 200 million copies of Canadian magazines and non-daily newspapers a year. “By offsetting the cost of reaching readers,” explains Heritage Canada, “Canadians can overcome geographic distances and communicate their ideas, opinions and art through print.” Pulling out of PAP while boosting mail rates, says Jamison, doubly penalizes magazines and readers across the country.

Postal subsidies for magazines were introduced in Canada “to encourage literacy and help bind the nation so that everybody can read the same literature no matter where they are,” explains Don Kummerfeld, president of the International Federation of the Periodical Press. Morrison concurs. “For Canada Post to suggest it has no cultural mandate is something Canadians need to pay attention to,” she says. She argues mail delivery is an “essential service,” comparable to universal health care in a country that has equalization programs, to ensure programs benefit everyone.

In fact, letter mail is universal, and regulated by the federal government; any rate hike requires its consent. Not so for publications mail. Canada Post says that’s a competitive service, and it can charge more if it chooses. Magazines Canada calls DRP an unqualified “revenue grab.” It warns that magazines may be forced to shut down, reduce their frequency or pass the increase onto readers via subscription fees. Others may simply drop delivery to locations where they have fewer readers.

Canada Post says only half of its publications customers will be affected by new DRP rates, most of which are magazines. Johnson notes publications still pay a heavily discounted price. For magazines that can’t hack it, “that’s part of their business model to manage through,” he says, noting customers were notified of the upcoming change 18 months ago. As for quitting PAP, Canada Post says that “it is inappropriate for the corporation to subsidize a particular segment of the marketplace,” and insists PAP amounts to a social policy program, and so falls in the government’s purview.

That may be a question for the federal government to answer. It launched a strategic review of Canada Post last April to identify a new financial and public policy mandate for the Crown corporation. It couldn’t come sooner given the mounting concerns of Canadians: aside from complaints over rate hikes, there was the nationwide strike; gaffes including passport applications lost in the mail, and the scandal of a postal carrier who stole years’ worth of letters. The panel will release recommendations soon.

Many believe Canada Post should have at least waited until those were out before implementing price increases. Jamison worries that the Crown corporation is losing sight of its role as a nation builder. “The geography of this country doesn’t allow us to think that way. We must accommodate our people wherever they are.” A letter, aptly enough, published in the Kingston Whig-Standard recently captures a now-familiar plea. “Come on, Canada Post officials,” wrote Carl Holmberg. “Stop looking at stick pins on a map in your office. Come out and take a look at the geography and the people you serve, and find a solution that works for us.”