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With mail dying, Canada Post bets its future on e-commerceTuesday, September 02, 2014 > 11:46:53
(The Globe & Mail)
The giant jumble of items in the oversized-package sorting area at Canada Post’s Pacific Processing Centre at Vancouver International Airport includes a large box of fortune cookies destined for Calgary, a motorcycle tire on its way to Victoria, a trapezoidal box from Beijing and a massage table for someone in Edmonton. But it was the naked steel torso of a truck muffler, on its way from London, Ontario, to a customer in Departure Bay, B.C., that caught the attention of Rod Hart, Canada Post’s general manager for domestic parcels. “That just might be the ugliest thing we’ll ship today,” Hart chuckles. “Still, somebody out there will be thrilled to get it.”
Hart was winding his way from the new $200-million centre’s main control room, which is perched like an alternative control tower above the airport’s main runway, toward the Asia-Pacific inbound airmail sorting area, the epicentre of the huge plant. The facility, Hart explained as he watched a multi-track conveyor system stream parcels—many sporting labels from Amazon, Hudson’s Bay Co., Best Buy and eBay—hrough a battery of photo-scanning devices, is the western counterpart to an even-larger sister plant near Toronto Pearson International Airport. Although both locations handle large volumes of letter mail, they were designed primarily for parcels. That emphasis is part of a historic pivot under way at Canada Post: The company, as Hart puts it, is quickly moving from a focus on “mail with some parcels, to parcels with some mail.”
More than 30,000 parcels arrive by air here daily from Asia, many of them containing small electronic items shipped directly from factories to online customers across Canada. “We’re seeing explosive growth in inbound parcels from Asia,” Hart says, noting that parcel traffic driven by online shopping is growing 30 per cent annually. “It’s unbelievable what Canadians are ordering online.”
Hart’s excitement about Canada Post’s huge new investment in the acres of highly automated parcel handling systems surrounding him was palpable. But the logic behind the investment was sober: Despite rumours to the contrary, the post office is not dead yet. What the Internet can take, reasons Canada Post CEO Deepak Chopra, it can also give: Even as e-mail devours his company’s traditional letter-delivering business, e-commerce is spawning vast new opportunities. Under Chopra’s direction, a piece of nation-building infrastructure legally mandated to tie together 15.5 million addresses across half a continent is morphing into an e-commerce company. “Our plan,” explains Chopra, “aims to transform our business by helping other businesses transform themselves.”
For proof that salvation is at hand, Chopra, who was recruited in 2011 from postal technology powerhouse Pitney Bowes, points to a crucial set of numbers at Canada Post, a federal Crown corporation with 66,000 employees. Against 2013 revenues of $7.6-billion, postal operations lost $269-million. That is not so surprising given that paper mail volume also shrank 4.8 per cent during the year. But meanwhile Canada Post’s revenues from its top e-commerce customers grew about 30 per cent, propelling its $1.4-billion consumer parcel business to deliver 7 per cent revenue growth, generating an extra $93-million. Canada Post also earned $66-million in pretax profit from its 91 per cent stake in Purolator, which dominates business-to-business parcel shipping and is Canada’s largest courier company. A further $179-million in revenue flowed from SCI Group, Canada Post’s technology and logistics company—which is itself increasingly devoted to servicing online retailers. On the whole, Canada Post Group (the post office and its main subsidiaries) lost $193 million in 2013, its third consecutive year of losses. Back in 2010, thanks in part to a $2.1-billion multiyear program to modernize its mail service, Canada Post reported its 16th consecutive year of profitability, with a 22 per cent return on equity that year. Between 1997 and 2008, Canada Post delivered about half a billion dollars to the federal government in return on capital and dividends.
Last December, Canada Post announced—with the tacit blessing of its owner, the Government of Canada—that it is replacing door-to-door residential mail delivery with community mailboxes. It remains a bitterly contested strategy for the Canadian Union of Postal Workers and no small number of customers, and it represents a profound shift for a company with a long tradition of universal public service that has racked up about $1-billion in federally backed debt since 2009 to modernize that service.