Terms of Reference

I. Background

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.

Canada Post was created as a Crown corporation in 1981 as the successor to the Post Office Department of Canada. Since that time there have been two significant mandate reviews of Canada Post; the first in 1985 and the second in 1995.

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.

As part of its response to the 1995 review, the Government also approved a Multi-Year Policy and Financial Framework for Canada Post in December 1998, which set specific service standards and financial goals for the Corporation and established a price cap formula for the basic lettermail rate (see Annex A).

Since the 1998 Multi-Year Policy and Financial Framework was established, the pace of change in information technology, combined with globalization, 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 approximately 200 000 per year, causing letter carriers to deliver to more addresses with fewer pieces of lettermail. This adds pressure to Canada Post’s operating costs each year.

Concurrently, the Government has been increasingly looking to Canada Post to contribute to public policy objectives beyond the provision of affordable, universal postal service by:

• placing restrictions on service rationalizations (e.g. moratorium on the closure of rural post offices);
• establishing delivery standards (e.g. delivery to rural mailboxes); and
• requiring Canada Post to support specific programs (e.g. Publications Assistance Program).

Canada Post has been asked to endorse these measures with limited funding or compensation. Despite these pressures, Canada Post has paid out more than $400 million in dividends to the Government of Canada since the Multi-Year Policy and Financial Framework was put in place in 1998.

II. Purpose of the strategic review

In light of the aforementioned developments, and similar in approach to the federal government’s decision to conduct strategic reviews for all departments over the next few years, a strategic review of Canada Post will be conducted to ensure it remains focused and is well positioned to continue to serve Canadians in the future.

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

III. Guiding principles

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

• 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.
• Canada Post is to continue to operate in a commercial environment and is expected to attain a reasonable rate of return on equity.

IV. Scope

Within the parameters of the guiding principles outlined above, the strategic review will focus on the following areas:

A. Market and competition

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

B. Public policy objectives and responsibilities

• 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?
• What have been the financial impacts of public policy obligations placed on Canada Post? How are the costs of public policy obligations funded?
• What are the social impacts of the universal service obligation?
• To what extent do all of the public policy obligations imposed on Canada Post meet the needs of Canadians?

C. Commercial activities

• 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?
• Which activities or services currently provided should be preserved as exclusive privileges and which ones should be provided in a more competitive environment?
• Does Canada Post have sufficient latitude/flexibility to perform successfully in a competitive market environment?

D. Financial and performance targets

• Are the parameters set out in the 1998 Multi-Year Policy and Financial Framework still valid and do they provide appropriate accountability?
• 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?
• 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?
• How should service delivery standards be established?

V. Governance and process

The strategic review will be conducted by an Advisory Panel made up of three part-time members selected by the Minister of Transport, Infrastructure and Communities and Minister responsible for the Canada Post Corporation. The Advisory Panel will be supported by a small full-time secretariat staffed by federal employees.

The Panel will work closely with the Chairperson of the Board of Directors as well as senior management of Canada Post. The work to be completed as part of this strategic review will rely extensively on information provided by Canada Post and as such, the successful completion of this strategic review will be dependent on cooperation between all involved parties.

Consultations with major stakeholders inside and outside of government will be undertaken. Public input will be sought through written submissions. Under the Advisory Panel’s guidance, the secretariat will develop and manage the overall project work plan and undertake studies to be completed internally or contracted out to fully assess matters defined in the scoping section of this document.

VI. Reporting and timing

The Advisory Panel will provide a status update to the Minister of Transport, Infrastructure and Communities and Minister responsible for the Canada Post Corporation no later than September 30, 2008 and a Report in December, 2008. The Report will be prepared in both official languages and, with the exception of the sections that are commercially sensitive, will be made public.

Annex A

Multi-Year Policy and Financial Framework (est. 1998)

Financial Performance	Target
Earnings before interest and taxes (EBIT):	$175 M
Return on equity (ROE):	11%
Dividend policy:	25%  (40% once ROE at 11%)
Debt-to-capital ratio	40%
Cost as a percentage of revenue	97%
Lettermail Service Delivery Standards (Urban and Rural)
Within same centre:	2 business days
Between centres in same province:	3 business days
Between centres in different provinces:	4 business days
Rural Retail Service Standards
CPC to negotiate with local community to better reflect community requirements.
Rural moratorium continues in place, although amalgamations are allowed.
Price Cap Formula
Price cap formula for determining future increases in the basic postal rate:
Rate increases to be held below inflation at a rate of two-thirds the annual rate of growth of the Consumer Price Index (CPI); Rate increases to be implemented no more than once annually, effective in January if such an increase is warranted; and Increases to be announced six months in advance.

The price cap formula forms part of the Lettermail Regulations.