The task presented to the Advisory Panel by the Minister and the Government of Canada was to offer analysis, recommendations and advice that would ensure Canada Post’s long-term capacity to achieve and retain financial self-sustainability and maintain universal postal service in an evolving postal world that has been made more competitive and challenging as a result of technological change and globalization.

1. Canadians are generally of the opinion that Canada Post is profitable and financially sound, whereas it is apparent to the Panel that Canada Post’s financial sustainability is uncertain at best;
2. Canada Post’s plants and facilities are in urgent need of modernization, as a result of inadequate capital investment;
3. There is misunderstanding and misconception at Canada Post and in the government about Canada Post’s core responsibilities, and the government’s concrete postal expectations, particularly in the key areas of the universal service obligation and rural mail services;
4. The roles, responsibilities and authority of the government, as shareholder, the corporation’s Board of Directors, and Canada Post management need clarification and better mutual understanding; and
5. There is an immediate need for postal policy action given these realities, a situation made more urgent by the recent economic and financial downturn.

Each of these realities – financial uncertainty, lack of modern infrastructure, uncertain policy expectations and unclear roles and responsibilities – combine to limit and threaten Canada Post’s capacity to continue to deliver universal postal service of a quality and at a price that Canadians expect and deserve. The Advisory Panel believes that the formal reporting of Canada Post’s profitable condition is accurate but could be misinterpreted. The fact is that the Canada Post Group of Companies is marginally profitable at best, while the Canada Post segment – the post office is barely breaking even.

The Advisory Panel’s report will seek to address each of these realities in a manner that respects the four principles set forth by the Minister responsible for Canada Post in our Terms of Reference:

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

At the heart of the challenging task presented to the Advisory Panel for this strategic review is the fact that Canada Post is, for all intents and purposes, a unique institution. There are really no comparable Canadian institutions for the Advisory Panel to examine. And, as will be seen in the following section, there are limits to what can be learned from other countries.

Canada Post was created in 1981 as a Crown corporation – and this categorization is particularly apt. The Government of Canada deliberately and consciously transformed the postal service from a department of government to a corporate form. Indeed, the history of Canada Post is, in one sense, the evolution of the Canadian post office from a departmental, bureaucratic organization into an increasingly corporate and commercial one. This evolution includes organizational, corporate, cultural and governance features. This change has been actively and openly encouraged by successive governments, a pattern followed in most postal organizations in the industrialized world. It has made enormous sense, given: the complexity of the postal operation; the scale of the service provided by Canada Post Corporation (CPC), which handles literally billions of items a year; the size of its work force (among the largest in Canada); its character (a highly capital-intensive infrastructure operation); the nature of its activities in the transportation and communications markets; and the fact that it performs and functions in an increasingly commercial and competitive environment. This is hardly the context for a typical department/governmental form of organization and operation. Canada Post Corporation’s corporate structure today is displayed in Figure 1.  

Figure 1: Canada Post Corporation

At the same time, Canada Post is a Crown corporation – one that is 100% owned by the Government of Canada. So, while Canada Post is a corporation, its shareholder is not a typical shareholder. Its shareholder is the Government of Canada, which has specific public policy obligations to Canadians to provide a postal service. The Government of Canada deliberately and consciously retained ownership of the postal organization, even in the move from a department of government to a corporate form. This has followed a pattern established in most postal organizations in the industrialized world, where – with few exceptions (e.g. partial privatization in The Netherlands and Germany) – posts remain government owned, even as transportation, communications, utilities and other state enterprises were privatized. Indeed, notwithstanding the corporatization and commercialization of the posts, and notwithstanding the advent of electronic communication alternatives, postal activity remains a highly sensitive service, and retains a public policy character for large parts of the population. This has been the case in New World countries – in particular Canada, New Zealand, Australia and the United States – where the posts played a historic nation-building role. And it has also been the case in Canada’s ancestral nations – England and France – where the post has continued to retain a highly public character. In this context, one can well understand why successive governments, here and abroad, have decided to retain public ownership of the postal service.

Canada Post’s evolution has been, at times, eventful and even awkward, as there is an inherent tension between commercial and public policy objectives and underlying values, organization and operation. But overall, this evolution has followed a relatively purposeful and coherent path. In simple terms, Canada Post has been encouraged by its shareholder to develop an increasingly commercial orientation and financial capacity, and has also been given increased autonomy to allow it to do so. The government has expected Canada Post to increase its financial and economic performance (e.g. by setting targets and requiring the payment of taxes and dividends) and has given it increasing autonomy and tools to do so (e.g. by increasing its ability to perform in commercial activities such as the courier business).

However, this increased corporate autonomy has been matched at each stage by ongoing, albeit different, forms of shareholder (government) declarations or expectations about service and public policy objectives. As will be described in this report, this ‘two-step’ march – increased corporate autonomy matched with enhanced public policy expectations – culminated in the creation of the 1998 Multi-Year Policy and Financial Framework for Canada Post. This framework combined financial and social expectations with some increased corporate and commercial capacity for Canada Post to meet these expectations. One critical issue for the Advisory Panel to address is whether the 1998 Framework remains appropriate a decade later.

What the Advisory Panel would like to accomplish is to contribute positively and constructively to the ongoing evolution of Canada Post. The Advisory Panel will propose recommendations and advice with the aim to ensure that Canada Post has adequate corporate and commercial capacity to maintain its financial self-sustainability, while presenting new ways and processes for the shareholder (the government) to articulate and communicate its public policy expectations of Canada Post.

Highlights of the evolution of Canada Post

The following brief overview of the evolution of CPC will explain and delineate the ‘two-step’ process that governments have followed – encouraging and increasing CPC’s autonomy and corporatization, while making increasingly specific and concrete policy determinations about CPC’s social obligations and requirements. As noted, the Advisory Panel will make recommendations that it believes will extend this process in a positive fashion.

1981: Bill C-42 creates Canada Post

In 1981, the Post Office Department was transformed into Canada Post Corporation, taking postal operations out of the hands of day-to-day government and placing them in a corporate organization as a Crown corporation financially independent of government. This initiative was widely supported in Canada as a way of making the postal operation more efficient, more effective and less costly to government, given the high deficits incurred by the Post Office throughout the 1970s.

Bill C-42 directed Canada Post to provide a basic and customary service, the universal service obligation (USO), although this was not well-defined. Bill C-42 also directed Canada Post to “conduct its operations on a self-sustaining financial basis, while providing a standard of service that will meet the needs of the people of Canada and that is similar with respect to communities of the same size.”

This economic versus social juggling act saw corporate autonomy (an 11-person independent Board, including the Chair and the CEO, which would devise corporate strategies and plans) contend with continuing high levels of direct government control (Governor in Council appointment of the Board and the CEO, and a minister with directive power and authority over borrowing and debt, property and prices, and regulations and corporate plans). Despite a substantial increase in postal rates in 1981 (from 17 to 30 cents), postal deficits totalled $1.3 billion between the 1982 and 1985 fiscal years, suggesting that this balance was not successful.

1986-92: Corporatizing Canada Post

The previous process concluded with the federal government rejecting CPC’s 1984 corporate plan as unrealistic and not moving Canada Post toward corporate and financial viability. The government created a panel – similar to the present Advisory Panel and composed primarily of private sector people – to review CPC’s mandate. The Marchment Report proposed a bold and aggressive strategy of commercializing Canada Post – from cost-cutting and rationalization measures, which would diminish or limit postal services, to balancing the books and strengthening the Board of Directors.

The government accepted the recommendations and moved them along by appointing a new corporate leader (CEO) and an exclusively business-oriented Board. It also made its policy intentions clear in the 1986 Corporate Plan, a document as important as Bill C-42, which the government itself prepared. Canada Post was instructed to balance its budget by 1987-88, to create a surplus by 1989, and to generate $300 million in dividends and a 14-15% return on equity by 1994. This instruction was extended when Canada Post was scheduled under the Financial Administration Act (FAA) as a Schedule III (2) Crown operation functioning in a competitive market environment.  

Canada Post began making profits in fiscal year 1988-89. Delivery standards were also set (two days locally, three days regionally, four days nationally). Once the government made its policy objectives clear, Canada Post was given the corporate autonomy to realize the financial objectives set by the government. This autonomy was used, among other things, to extend the use of community mailboxes (limiting home delivery); to contract out sorting and delivery of parcels; to close or transform 30% of the rural network; to franchise urban post offices; to increase postal mechanization and reduce full-time employment by 10 000; to move to market-based pricing of its competitive products; to limit financial support to public postal services like publications mail; and to purchase Purolator in order to enter the courier market.

1993-99: Re-introducing social and political limits

The previous period saw the government communicate its objectives to Canada Post and assign Canada Post requisite corporate autonomy to attain those (mainly) financial objectives. The effect was to neutralize the need for the corporation to pay attention to the social side of the postal juggling act.

A new government in 1993 acted to re-balance the economic and social goals of CPC, albeit without reducing the corporatization accomplishments of the previous six years. For example, it almost immediately introduced a 30-day moratorium on rural postal closings. This moratorium was extended in 1994 indefinitely. The new government also disallowed a price increase. (An increase was later approved, but a price freeze was later imposed until 2000.) The government further corporatized the CPC environment by making it a prescribed Crown corporation under the Income Tax Act. This required Canada Post to pay income taxes, like any private sector company. This pattern of balancing commercialization with social controls was extended after the conclusion of another mandate review (the Radwanski Report) in 1995-96. On the one hand, the government extended the moratorium on rural closings and increased service standards. On the other hand, the government made clear that CPC could remain active in competitive and commercial areas (beyond the narrow confines of lettermail) and could retain ownership of Purolator. Moreover, the government did not require CPC to undo the corporatization accomplishments of earlier years, such as postal closings, franchising and rationalization.  

This process culminated in 1998, when the government created the Multi-Year Policy and Financial Framework (see Appendix B, page 119). The Framework, through a series of quantitative targets, articulated the government’s expectations for financial return and for some service elements as well as establishing a price cap formula for the basic lettermail rate. At the same time, it also confirmed CPC’s ability to compete in the wider competitive environment. Generally, the idea was that once the Framework was in place, CPC would have the autonomy to pursue its commercial agenda within the parameters of the Framework. Moreover, the fact that the Framework was announced quietly and without public fanfare gave CPC some degree of protection and increased its autonomy. The Advisory Panel will analyze and comment on the Framework in Part II of this report and make some recommendations in Part III about a framework appropriate for Canada Post’s future.

Recent developments

The two-step pattern of increasing corporatization matched with government issued objectives continues to the present.

On the one hand, in 2007 the government introduced Bill C-14 to deregulate outgoing international mail, which would have intensified Canada Post’s competitive environment. The Bill died on the order paper when Parliament was dissolved in September 2008.

On the other hand, in 2006, the government used its directive power to set out and clarify to CPC its policy objectives in two areas. First, in the context of addressing concerns about safety issues associated with the delivery of rural mail, the government directed Canada Post to continue to deliver mail at individual rural roadside mailboxes and to draw up an operational plan to address this issue. Second, the government directed Canada Post to continue to provide financial support to the Publications Assistance Program, until March 31, 2009.

The strategic review process offers the possibility of creating the next stage in the evolution of Canada Post, as it confronts new market conditions, globalization and technological change. The objective of the strategic review is to improve Canada Post’s capacity through appropriate tools and policies – to allow it to confront these new conditions – while also devising new ways for the shareholder (the government) to articulate and communicate its financial and social goals and expectations about the postal system to Canada Post.

Structure of this report

This report will be presented in three parts. Part I is made up of what the Panel learned through its consultations with, and submissions from, Canadians. Part II presents the Panel’s analysis of the major themes and issues that envelop the postal world and Canada Post’s place in it. Part III will present the Advisory Panel’s recommendations to the Minister, based on what we have learned.

In Part I, the report will:

• Analyze broadly what is happening in the postal market;
• Present and explain what Canadians have told us (individual postal users, small and large customers, competitors, social groups, unions and so on);
• Present and analyze the major trends among a number of posts abroad; and
• Present what we learned from Canada Post, both with respect to its analysis of the conditions it faces and with regard to what it perceives it needs in order to attain the financial self-sustainability that is required if it is to pursue the universal service obligation and meet Canadians’ postal needs.  

In Part II, the report will present and analyze our understanding of the five major themes and issues that envelop the postal world and Canada Post’s place in it:

• The need to establish a clear and transparent understanding of the universal service obligation, which lies at the heart of Canada Post’s existence;
• The urgent need for Canada Post to modernize its network and to keep it current and up-to-date on an ongoing basis;
• The tools that Canada Post needs to become financially self-sustaining;
• The need to create a clear and transparent understanding of Canada Post’s roles and responsibilities in rural Canada; and
• The need to clarify, make transparent and operationalize the respective roles, responsibilities, and authority of the Government of Canada, Canada Post’s Board of Directors and the corporation’s management.  

The analysis presented in Part II will lay the foundation for the presentation and explanation in Part III of the Advisory Panel’s recommendations, including a Revised Financial and Service Framework for Canada Post. This Framework and these recommendations are aimed at devising a new and improved way for the government to clarify, articulate and communicate its objectives to CPC, while establishing an appropriate degree of corporate autonomy and capacity for Canada Post so that it has the tools to successfully address new and rapidly changing market conditions.

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