Postal Review

The Canadian Government Reviews Canada Post

In May 2016 the Canadian government announced an independent review of Canada Post, the fourth major review of the postal service since 1985. The announcement came after Justin Trudeau and his Liberal Party were elected on a platform that included a promise to stop Canada Post's program to end door-to-door delivery. The new government initially asked Canada Post's president and CEO Deepak Chopra to step down, but when he refused, the government followed through on its promise to stop to the program and it ordered a fresh review of Canada Post.

Established in 1753, Canada's postal service is older than the country itself. Like the national railway, the postal service helped tie together a country spread over six time zones, and helped forge a strong national identity that endures today. In 1981 it was turned into a Crown corporation with a mandate to provide postal services to Canadians on a self-sustaining financial basis. But the move to cut costs by ending door-to-door delivery after three years of losses beginning in 2011, led to calls for the government to act.

Public Services minister Judy Foote announced that the review is to look at possible options for change, and their costs and implications. A four-member panel produced a discussion paper, setting the stage for parliamentary hearings in the fall. A parliamentary committee will deliver a report in December and the government will announce its decision on the committee's findings sometime in the spring of 2017.

Much Review Begets Nothing?

As much as this review was welcomed by many, we wonder what real change, and what real improvement in Canada Post, will come out of the review. In phase 1 of the review the four member task force identified options for changes that will improve Canada Post's financial situation while delivering services that meet the needs of Canadians in a self-sustainable way. But in the discussion paper released by the task force, the option identified with the greatest potential savings and greatest impact on the bottom line is the very one that Canada Post was trying to implement when the uproar over community mailboxes erupted. According to the task force, community mailbox conversion – the shifting of door-to-door delivery customers to community mailboxes – offers a possible $400 million saving, more than double the next best option identified. But it is hard to imagine the government adopting this non-starter option.

The option with the next greatest potential impact on profit is the conversion of 800 post offices to franchise outlets. Here some $177 million in savings are believed by the task force to be possible. Canada Post has moved to privatize retail postal services for years, and has had some success in doing so in urban areas. But by the task force's own admission, this option requires a difficult "refreshing" of the Rural Moratorium imposed in 1994 to end the privatization of rural post offices. It also depends on changing union agreements and getting the rural public to buy in. While it would be nice to remove these barriers to progress, that seems unlikely to happen in our opinion. Like much of this review, this discussion will amount to not much more than public hand-wringing about what will be claimed to be an intractable problem. What if, instead of privatizing the problem post offices, Canada Post worked to improve these post offices and made them more customer-friendly? For example, extending hours and making it easier for businesses to bring their in mail and parcels could make these post offices more effective partners of business. In other words, if the post offices can't be privatized, then make them more like privatized post offices.

The next biggest savings option is adopting alternate day delivery, some $74 million in expected savings. Canada Post already studied this option recently and may already be positioning itself to go forward with this idea. The task force's own survey suggests that there is public acceptance for a cutback in delivery days per week. Like community mailbox conversion and retail post office privatization, this option amounts to a "slash and burn" path to profitability – of cutting services for short term gain and long term loss. This kind of bottom-line thinking is a necessary part of the solution mix, but relying mostly on "slash and burn" tactics points to a deficit in creative thinking. It is the kind of unimaginative thinking that one would expect from an accountant like Canada Post's president and CEO Deepak Chopra.

Who Are the Customers?

A key requirement of the review is to ensure that options considered meet the "needs of Canadians." But the task force did little to understand who the customers of Canada Post are. In places throughout the document "needs of Canadians" conflates to the "needs of consignees" and ignores the needs of the shippers who make the shipping decisions and account for most of the company's revenue. The small business segment, a segment we believe is very much under served by Canada Post, is largely ignored in the document. Canada Post's history of catering only to its largest customers is evident in its service and pricing policies, and continue today even as its largest, most astute customers find ways to move away from Canada Post. In ignoring the needs of small business, we believe the review is fundamentally flawed and will fail to give a true assessment of what changes are needed at Canada Post.

Deficit of Leadership and Vision

Nowhere in the task force's discussion paper is leadership discussed. There is no analysis and evaluation of the vision, skills and tactics of the leadership from Chopra on down. Nowhere is there any acknowledgement of the fact that the executive, management, administrative and supervisory functions account for 24% of the headcount of Canada Post. In contrast, only 17% of the worldwide workforce of United Parcel Service are management and 83% are hourly delivery and processing workers; only 19% of the workforce of the United States Postal Service are management and the rest, 81%, are delivery and processing personnel. A "refreshing" of Canada Post will not be possible unless the slow, inefficient and unimaginative upper management is replaced, starting with the president and CEO.

As the task force rightly points out, Canada Post faces serious threats to its core business with the advent of disruptive technologies like Uber, inPost and Flipp and others. The task force should be asking the question, is Canada Post's leadership equipped to navigate these strong headwinds effectively? Without a critical review of Canada Post's leadership this review risks becoming an exercise of government micromanagement. Obsessing over policies and strategies is what leadership is supposed to be doing.

Parliamentary Hearings Underway

With its appearance before the House of Commons Standing Committee of on Government Operations and Estimates on September 20, the task force completed its work. Armed with the task force's findings, the parliamentary committee is travelling across Canada to hear the views of Canadians and stakeholders. When the hearings are completed the committee will prepare its report for the government. The committee's deliberations can be found here.

The cost and effectiveness of management was brought up by two committee members at the first hearing. Pressed in questioning from Nick Whalen and Yasmin Ratansi, Francoise Bertrand, Chair of the Task Force, told the committee that out of total labour cost of $4.4 billion, "management, overhead and backoffice" cost Canada Post $650 million. This means that these management, overhead, and backoffice functions collectively account for only 15% of Canada Post's total labour cost. But Canada Post's headcounts are given on page 21 of the task force's report and there we can see that the four categories of "postmasters and assistants," "supervisory and operations support," "executive, management and non-unionized," and "clerical, technical and professional" add up to 24% of the headcount. Assuming that these four categories make up what Bertrand referred to as "management, overhead and backoffice" functions, then the numbers do not make sense. It hard to believe that 24% of the total headcount in the four management and administrative categories accounts for only 15% of Canada Post's total labour costs.

At the next day's hearing, CEO Deepak Chopra told the committee that management is "less than 5% of our workforce" and costs "in the range of $200 million." This again raises questions about numbers because this implies that management is getting paid less than front line delivery and processing staff. Our rough calculations based on Chopra's numbers suggest the front line processing and delivery staff is getting paid more than $92,000 annually while management is getting paid only $80,000. These obviously wrong numbers suggest that Canada Post has not been very forthcoming publicly with the breakdown of its labour costs. As Bertrand admitted to the committee, the task force did not look at whether management "could be reorganized," which suggests to us that the task force failed to press Canada Post enough on what the real management costs are and whether the current management and top leadership are doing an effective job.