Consultation Guidance Document

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Message from the Advisory Panel

The Advisory Panel is pleased to undertake this strategic review of the Canada Post Corporation (referred to later as Canada Post) on behalf of the Minister of Transport, Infrastructure and Communities and Minister responsible for Canada Post.

This consultation guidance document has been designed to assist all interested parties in providing us with input on the key issues that need to be addressed. We invite you to consider the contents of this document and we look forward to receiving your views and submissions to help us in our mandate. The last section of this document will point out the different ways to communicate with us.

Dr. Robert Campbell, Chair, Advisory Panel
Mrs. Nicole Beaudoin, Member, Advisory Panel
Mr. Daniel H. Bader, Member, Advisory Panel

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Table of Contents

1. Introduction a. Context
b. Purpose of this Document

2. How to Make a Submission a. Website
b. Written Submissions

3. Mandate of the Canada Post Corporation Strategic Review Advisory Panel a. Roles and Responsibilities
b. Overview of Consultations
c. Report

4. Key Issues to be Explored a. Principles
b. Market and Competition
c. Public Policy Objectives and Responsibilities
d. Commercial Activities
e. Financial and Performance Targets

Appendix A – Biographies of Advisory Panel Members
Appendix B – Terms of Reference of the Canada Post Corporation Strategic Review         – Annex A: Multi-year Policy and Financial Framework (est. 1998) Appendix C – Background on Postal Services in Canada a. Brief History of Canada Post
b. Business of Canada Post
c. Public Policy Obligations
d. Previous Reviews of Canada Post

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1. Introduction a. Context

On April 21, 2008, the Honourable Lawrence Cannon, Minister of Transport, Infrastructure and Communities and Minister responsible for Canada Post announced that an external, independent advisory panel had been mandated to conduct a strategic review of Canada Post. The Advisory Panel consists of Dr. Robert Campbell (Chair), Mrs. Nicole Beaudoin, and Mr. Daniel H. Bader. (Biographies of the Panel members are annexed to this document.)

b. Purpose of this document

This document provides background and/or summary information to stakeholders on the mandate of the Advisory Panel, key issues to be explored in the Review and on postal services in Canada. The key issues have been drafted in the form of questions to help focus input from stakeholders.

2. How to Make a Submission

a. Website

A website for the Canada Post Corporation Strategic Review has been established at: www.cpcstrategicreview.gc.ca. Interested parties are encouraged to refer to the website for information on the progress of the strategic review.

b. Written Submissions

All interested parties can provide the Advisory Panel with written submissions. Submissions will be accepted until September 2, 2008 at 11:59 p.m. EST. All submissions will be published on the website as they are received, except for information of personal nature about a third party, or commercially sensitive, as identified by the originator.

Interested parties are invited to provide written submissions to the advisory panel - electronically at the following email address:

info@cpcsr-esscp.gc.ca.

or by mail to the address below:

Canada Post Corporation Strategic Review
330 Sparks St. (HCCR)
Ottawa, Ontario
K1A 0N5

or by fax at:

613-990-9033

3. Mandate of the Canada Post Corporation Strategic Review Advisory Panel

The Minister of Transport, Infrastructure and Communities and Minister responsible for Canada Post has mandated the Canada Post Corporation Strategic Review Advisory Panel to conduct an independent strategic review of Canada Post to ensure that the Corporation remains focused and is well positioned to continue to serve Canadians in the future.

The purpose of the review is to examine Canada Post’s public policy objectives, its ability to remain financially self-sustaining, and the continued relevancy of the Corporation’s Multi-Year Policy and Financial Framework, established by the government in 1998.

a. Roles and Responsibilities

The role of the Advisory Panel is to conduct an independent study and analysis, undertake consultations with major stakeholders inside and outside of government, take into consideration the public’s input received through written submissions, and to prepare a report for the Minister with findings and recommendations.

b. Overview of consultations

A key activity in the review is the consultation process. The Advisory Panel will hold consultation meetings with various stakeholders, including government, industry, commercial companies, clients, business groups, lobby groups, bargaining agents, and other groups which may be included as a result of the consultation process.

Public consultation will be done through written submissions. Submissions will be tabulated and analyzed by the Advisory Panel.

c. Report

The Panel is expected to provide a Final Report to the Minister in December 2008. The Final Report will be prepared in both official languages and, with the exception of the sections that are commercially sensitive, will be made public.

4. Key Issues to be Explored

a. Principles

The strategic review will be guided by the following four principles:

1. Canada Post will not be privatized and will remain a Crown corporation.
2. Canada Post must maintain a universal, effective and economically viable postal service.
3. Canada Post is to continue to act as an instrument of public policy through the provision of postal services to Canadians.
4. Canada Post is to continue to operate in a commercial environment and is expected to attain a reasonable rate of return on equity.

The following questions are designed to help focus input from stakeholders on four key areas of interest: Canada Post’s market and competition, public policy obligations and responsibilities, commercial activities and financial and performance targets.

b. Market and Competition

Since the 1998 Framework was established, the pace of change in information technology has greatly accelerated. This includes the continued prominence of the Internet and its increasing popular acceptance for receiving and paying bills as well as its use for advertising purposes. Also, the number of addresses in Canada increases by roughly 240,000 per year, requiring letter carriers to deliver to more addresses with fewer pieces of mail. Postal markets have also changed significantly over recent years, with many countries liberalizing all or a portion of their postal services.

Lines of inquiry

1. How have changes in technology, competition and customer demographics shaped the postal market?
2. What has been the evolution of the markets for lettermail, parcels, advertising mail, and international mail?
3. What are the emerging needs of postal service customers?
4. What can be learned from these same developments in the postal services markets in other countries?

   

c. Public Policy Objectives and Responsibilities

Canada Post is mandated to provide affordable, universal postal service to Canadians. It contributes to Canada’s social cohesion and economic prosperity objectives by giving Canadians the capacity to keep in touch and do business with each other and their governments in a timely, accessible and inexpensive manner. The Government has been increasingly looking to Canada Post to contribute to public policy objectives beyond the provision of affordable, universal postal service as discussed in Section 2 c of this document.

Lines of inquiry

1. What are the costs of the universal service obligation and to what extent do revenues generated by Canada Post’s exclusive mail collection and delivery privilege offset these costs? How are those costs and revenues expected to evolve in the future?
2. What have been the financial impacts of public policy obligations placed on Canada Post? How are the costs of public policy obligations funded?
3. What are the social impacts of the universal service obligation?
4. To what extent do all of the public policy obligations imposed on Canada Post meet the needs of Canadians?

   

d. Commercial Activities

Canada Post fulfills numerous public policy objectives while operating in the commercial marketplace. It is expected to be financially self-sustaining. Increasingly, the government has asked Canada Post to fulfill additional social obligations with limited funding or compensation. Despite these pressures, Canada Post has paid out more than four hundred million dollars in dividends to the Government of Canada since 1998.

Lines of Inquiry

1. What are the internal and external challenges and risks faced by Canada Post in its effort to ensure its activities generate reasonable rates of return and contribute to fund its public service obligations?
2. Which activities or services currently provided should be preserved as exclusive privileges and which ones should be provided in a more competitive environment?
3. Does Canada Post have sufficient latitude/flexibility to perform successfully in a competitive market environment?

e. Financial and Performance Targets

The 1998 Framework sets out specific service standards, financial and other performance targets. Included in the Framework are financial performance targets regarding earnings before interest and taxes, return on equity, dividend policy, debt to capital ratio, and cost as a percentage of revenue. The Framework also has letter mail service delivery standards (urban and rural) as well as rural retail service standards. Finally, to address the affordability factor of Canada Post’s public policy obligations, the Framework includes a price cap formula for determining increases in the basic postal rate.

Lines of Inquiry

1. Are the parameters set out in the 1998 Multi-Year Policy and Financial Framework still valid and provide appropriate accountability?
2. Is there an appropriate policy and financial framework in place to ensure that Canada Post can compete successfully in the marketplace and meet its public policy obligations?
3. What are appropriate financial and performance targets for Canada Post that will reflect its dual public and commercial objectives, and support its efforts to improve the corporation’s cost structure and efficiency and meet future infrastructure needs?
4. How should service delivery standards be established?

Appendix A – Biographies of Advisory Panel Members
Appendix B – Terms of Reference of the Canada Post Corporation Strategic Review
                 – Annex A: Multi-year Policy and Financial Framework

Appendix C - Background on Postal Services in Canada

a. Brief History of Canada Post

The Canada Post Corporation was established on October 16, 1981 through the Canada Post Corporation Act. The Act moved the provision of domestic and international mail services from the Post Office Department of Canada to a wholly owned Crown corporation. The Act details Canada Post’s policy and operational framework and stipulates that it is to be self-sufficient. The Corporation has the sole and exclusive privilege to collect, transmit and deliver letters within Canada; other Canada Post services (such as parcel delivery) are open to competition.

Canada Post and its wholly owned subsidiaries are subject to Part 10 of the Financial Administration Act (FAA), which provides the Government’s control and accountability framework for federal Crown corporations. Canada Post is listed in Schedule III, Part II of the FAA and, as such, is expected to earn profits, provide a return on the public’s investment, and pay taxes.

Prior to the establishment of Canada Post Corporation, the Post Office Department had accumulated losses of more than $4 billion between 1968 and 1981. The Post Office was subject to frequent labour disruptions, and service levels had provoked widespread customer dissatisfaction. There were four national strikes and more than 700 local work stoppages between 1970 and 1981.

b. Business of Canada Post

Since its creation in 1981, Canada Post’s financial and service performance and labour relations have improved. The Corporation has returned significant sums of money to the government in the form of taxes since 1987 and dividends since 1996-97. Since introducing independently measured lettermail standards in 1987, there have been consistent improvements in service. According to Canada Post’s 2006 annual report, Canada Post achieved a 96 per cent on-time delivery standard for letter mail. There have not been any national strikes since 1998.

Since incorporation, Canada Post has expanded its express and distribution business lines providing products and services that are complementary to postal service including communications, distribution and logistics solutions. These are provided through Canada Post itself and/or its subsidiaries: Purolator Courier Ltd, SCI Logistics Inc, and Innovapost.

In 2006, Canada Post and its subsidiaries employed over 70,000 Canadians. The Corporation processed 11.6 billion parcels and letters, and delivered to more than 14 million addresses. Canada Post’s a network of approximately 6,600 post offices and retail outlets collects letters and parcels throughout the country. It processes mail through 22 major plants and other smaller facilities. Mail is forwarded to almost every country in the world.

Canada Post is among the 50 largest Canadian businesses in terms of revenue and is among the 10 largest employers in Canada. Through the Universal Postal Union (a United Nations body) and/or bilateral agreements it also has commercial, operational, and financial links with over 200 postal administrations around the world.

c. Public Policy Obligations

In addition to providing access to affordable postal service to each person in Canada through the collection and delivery of mail at postal offices, outlets and post boxes, Canada Post is required to meet a range of public policy objectives:

1. Universal Service Obligation
   Canada Post's mandate is to provide basic customary postal service at affordable rates across the country. This obligation is commonly referred to as the Universal Service Obligation (USO).
2. Materials for the Use of the Blind

The Canada Post Corporation Act provides that materials for the use of the blind may be sent free of postage, subject to the conditions and restrictions as set out in the Material for the Use of the Blind Regulations.
3. Government Free Mail
   The Canada Post Corporation Act provides that mail to sent to and from the Parliamentarians, and certain others such as the Governor General and the Ethics Commissioner, is free of postage as long as both the sender and receiver are in Canada.
(Canada Post receives $22.21 million per year in appropriation funding for Government Free Mail and Materials for the Use of the Blind.)
4. Publications Assistance Program (PAP)
   The PAP provides a subsidy to eligible Canadian magazines and weekly newspapers to offset their mailing costs to addressees in Canada. Canada Post manages the PAP on behalf of the Department of Canadian Heritage, and contributes up to $15 million annually toward the program’s - annual budget. In December 2006, Canada Post was directed to continue to provide funding to the PAP until March 31, 2009, while Canadian Heritage determines the best way to support the Canadian publishing industry in years to come.
5. Library Book Rate (LBR)
   The LBR is a program that permits Canadian libraries to send library books through the mail to other Canadian libraries at lower than normal parcel shipping rates. Canada Post receives no appropriations to support the LBR. Canada Post has agreed to maintain the current LBR until January 2009. The Department of Canadian Heritage provides policy guidance related to the LBR.
6. Food Mail Program
   The Food Mail Program is a Government of Canada initiative that subsidizes the cost of moving healthy food to northern communities. The Department of Indian and Northern Affairs provides funding to Canada Post to cover the part of the cost of providing commercial air parcel service to about 140 northern communities.
7. Moratorium on the Closure of Rural Post Offices
   In 1994, the Government placed an indefinite moratorium on the closure of rural post offices. The moratorium applies to post offices owned and operated by Canada Post. It does not apply to franchise post offices, owned and operated by private businesses.
8. Rural Mailbox Delivery
   Since 2005, in response to health and safety concerns raised by its rural and suburban mail carriers, Canada Post has temporarily or permanently stopped delivering mail to some rural roadside mailboxes. On December 13, 2006, the Government of Canada directed Canada Post to restore delivery to rural mailboxes while respecting all applicable laws. Canada Post is currently reviewing the safety of all of its rural roadside mailboxes. In cases where delivery to affected roadside mailboxes cannot be reinstated in a safe, lawful manner mail delivery is redirected to group mailboxes or local post office outlets.

d. Previous Reviews of Canada Post

There have been two significant mandate reviews of Canada Post since its creation in 1981; the first in 1985 (the Marchment Review) and the second in 1995 (the Radwanski Review).

In response to the 1995 review, the Government established a set of requirements, including:

• that Canada Post provide an affordable, universal postal service;
• that Canada Post remain a public institution as long as it continued to fulfill its public policy role; and
• that Canadians should not be asked to subsidize letter mail.

The Government also confirmed Canada Post’s involvement in the provision of competitive services such as parcels, courier and admail, on the understanding that these services would help to maintain affordable letter mail service. In December, 1998, as a follow-up to its response to the 1995 review, the Government approved a Multi-Year Policy and Financial Framework for Canada Post which set specific service standards and financial goals for the Corporation and established a price cap formula for the basic lettermail rate.

In addition to these reviews, the Office of the Auditor General of Canada has conducted regular examinations of Crown corporations, including reviewing their management practices, controls, and reporting systems, as well as regular Special Examinations of each Crown corporation including Canada Post. As well, the Treasury Board Secretariat did an overall review of Crown corporations as summarized in its report released in February 2005 entitled “Review of the Governance Framework for Canada’s Crown Corporations”.