Why experts say Canada Post could go ‘the route of Blockbuster’ soon

Click to play video: 'Canada Post CEO says he’d like to see delivery 7 days a week'
Canada Post CEO says he’d like to see delivery 7 days a week
WATCH - Canada Post's CEO says he'd like to see delivery seven days a week – May 31, 2024

Canada Post needs to find a competitive edge against private postal operators in the next few years or it risks collapse, experts say.

The Crown corporation’s president and CEO said Wednesday that the best way for Canada Post to remain competitive against private companies is to expand mail delivery from five to seven days a week.

But experts say it isn’t clear how doing so will help bring Canada Post out of financial turmoil.

“If they don’t become competitive within five or six or seven years, they will go the route of Blockbuster Video. Why? Because those losses are going to get bigger year after year,” said Ian Lee, associate professor at Carleton University’s Sprott School of Business.

Canada Post CEO Doug Ettinger told the House of Commons’ government operations committee that the key to recovering from its current slump is if the federal government changes regulations around how often the postal operator is required to deliver letter mail.

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“To be competitive in e-commerce and parcels we have to be there everyday. In fact, the answer to this now … is we need seven-day delivery. That’s what we need,” Ettinger said.

Canada Post reported a $748-million annual loss before taxes for 2023 earlier this month, making it the sixth consecutive year that the postal service has been in the red.

Marvin Ryder, associate professor at McMaster University’s DeGroote School of Business, said he sees the potential for success that a seven-day delivery model could have but it isn’t clear to him how the plan would differentiate Canada Post enough from competitors.

“I get why (Ettinger) would like to move to seven-day-a-week mail delivery. But my question is, that sounds expensive. Where are you going to get the revenue to offset it?” he said.

“I don’t think (competitors) are raising their cost of delivery. So frankly, … I am at a loss to understand the CEO’s comments,” Ryder said.

Ettinger said Wednesday that the corporation recognizes that its customer’s needs have changed drastically since its creation as a crown corporation in 1981, especially in the digital era. Its foundations — rooted in a pre-internet time — have been “holding us back,” he said.

“We are driving a 1967 Chevy in a Formula 1 race.”

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Ryder said Canada Post is lacking “innovation” and “creativity” to improve its profits.

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“What’s the new model? What’s the Tesla in the race? That we need to hear, and that’s also what the government needs to hear,” he said.

Can Canada Post compete?

Though Canada Post is part of the public sector, the Crown corporation is sustained through profits rather than taxpayer funds.

That means unlike private competitors, Canada Post has to follow a mandate laid out by the federal government which includes the requirement to deliver mail across Canada five days a week, no matter what.

However, the mandate — which is called the postal charter — hasn’t undergone a significant upgrade since 2009.

Despite plummeting demand in paper letter delivery in the last 15 years, Ettinger said Wednesday that scaling back delivery days isn’t the answer to its financial woes.

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He said the seven-day model would better position Canada Post to compete on parcel delivery, which is where the market is rather than snail mail.

Parcel delivery had been a saving grace for the mail service in recent years amid a boom in Canadians shopping online, particularly in the pandemic.

But Canada Post’s share of that market is eroding too: where it once delivered nearly two-thirds of parcels pre-pandemic, the rise of new competitors in the space meant the Crown corporation handled less than a third of all packages last year.

“Parcels are the very future of the company. … However, the parcel delivery market has become hyper competitive,” Ettinger said Wednesday. “We’re going head-to-head … against established global players and low cost new entrants that emerged through the pandemic.”

The CEO said the cost of postage and the cost of providing delivery services widens year over year.

In a bid to boost revenue flows heading into the postal service’s coffers, Canada Post confirmed a previous announcement earlier this month that the cost of a single stamp would rise seven cents to just under a dollar when bought in a booklet.

Ryder said Ettinger is likely implying that he plans on raising rates even more, but it would come at a risk.

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“That’s fine. I mean, that’s another way to do it. But if you double the price, then you give more people an incentive to communicate with each other digitally where they don’t have that price,” Ryder said.

Click to play video: 'Canada Post on track for another big loss this year, faces uncertain future'
Canada Post on track for another big loss this year, faces uncertain future

Under the current mandate, Canada Post is required to ensure letter mail is delivered in two days within a city, three days in the same province and four days across the country.

Canada Post said in an email to Global News that shipping requirements should be tweaked to better align with Canadians’ modern day needs.

“The legislated requirements could be eased on how long we have to deliver letters and save money without having an impact on customers,” an email from Canada Post spokesperson Valérie Chartrand said Thursday.

“A day could be added or adjusted making sure urgent letters are treated first to better align with expectations of Canadians today, rather than what was set up in 2009.”

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Jean-Yves Duclos, the federal minister responsible for Canada Post, was asked in Ottawa earlier in May whether the government would amend legislation to remove the mandate for daily mail delivery.

While Duclos said it was an “option” being considered by Canada Post, he did not weigh in on whether the Liberal government would make that change. He acknowledged the changing landscape for mail delivery in Canada but said the government is waiting to see a new model from the Crown corporation to boost revenues and save on costs.

Ryder said he doesn’t believe the federal government will grant any of Canada Post’s requested changes to its delivery mandate without concrete proof from the postal service that its suggestions will have the intended impacts.

He said Canada Post needs to look beyond amendments to the mandate to stay afloat.

“I’m all in favor of revisiting the mandate, taking the shackles off, opening the door to more innovation and new ideas. But I think it’s got to be a combination of new products and services, along with delivering the existing products and services more efficiently,” he said.

“I don’t believe Canada Post has to die.”

— with files from Global News’ Craig Lord and Sean Previl

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