Proceedings of the Standing Senate Committee on
National Finance
Issue 4 - Evidence - April 27, 2010
OTTAWA, Tuesday, April 27, 2010
The Standing Senate Committee on National Finance met this day at 9:30 a.m. to examine the Estimates laid before Parliament for the fiscal year ending March 31, 2011.
Senator Joseph A. Day (Chair) in the chair.
[English]
The Chair: Good morning, everyone. I call this meeting of the Standing Senate Committee on National Finance to order.
[Translation]
This morning, we continue our study of the 2010-2011 Main Estimates which have been referred to our committee.
[English]
The committee has held six meetings in relation to these Main Estimates for this particular fiscal year, and we will continue to examine them over the course of the fiscal year.
Honourable senators know that the main supply bill that flows from these Main Estimates is likely later in June, and we want to ensure that we have our report into the Senate prior to dealing with the main supply.
This morning we are very pleased to welcome Moya Greene, President and Chief Executive Officer of Canada Post Corporation. The committee has historically had an interest in the operation of Crown corporations, and we are very pleased that Ms. Greene has been able to join us this morning.
Moya Greene, President and Chief Executive Officer, Canada Post Corporation: Good morning, senators, and thank you very much for inviting me to discuss my favourite subject, which is Canada Post, and some of the challenges and the opportunities we face. I will tell you what we have managed to do over the past few years and what we have ahead of us in the future.
Our 2009 annual report was tabled yesterday in Parliament. It showed that we faced many challenges in 2009, as did all companies and international postal services. I would say that 2009 was probably the most difficult year in my business career, but we had a lot of success at the same time.
Our employees are more engaged in what it takes to be successful in our business than they were a few years ago. We have managed to reduce accidents by 22 per cent in one year. Our customers think more highly of us than they did several years ago. In fact, our customer scores have gone up every year in the past five years, and I am pleased to say that in 2009, our on-time delivery was the best we have had in the history of the company. With all of that, and with all of the challenges that companies faced in 2009, we still managed to make a profit. In fact, 2009 marked the fifteenth consecutive year of profitability at Canada Post. That stands in marked and remarkable contrast to what you see happening in the United States or the United Kingdom, for example.
[Translation]
The postal system is an integral part of the global economy. Today, Canada Post operates the largest transportation and retail network in this country. There are more than 6,500 post offices in Canada.
[English]
We have more post offices in Canada and more ways for Canadians to access our services in Canada than any other retail establishment in the country. In fact, it is bigger than all of the banks combined. It is bigger than even the number of ATMs that the Royal Bank has, so it is a large retail network at 6,500 outlets.
We have been successful from any dimension that you look at it. Now, if I look at it from your perspective, you represent our shareholder, as members of this honourable institution. In the past 10 years, Canada Post has paid the Government of Canada almost $400 million in income taxes and another $350 million in dividends.
I would like to point out that while everything else is going up, for example, what has happened to housing in our country in the past 10 years, Canadians enjoy some of the lowest postal rates in the industrialized world. I mentioned earlier that our on-time delivery performance has consistently gone up, and in 2009 it was the absolute best. It did not matter which product area you were talking about, whether it was parcels or direct marketing mail.
Canada Post is a very large company, and you have to think about it in terms of its scale. It has $7.3 billion of revenue. It has, in the whole group of companies, 71,000 employees. That makes it one of the largest companies in our country. People do not always realize that Canada Post has evolved in the 27 years since it has been a commercial entity, and it now gets 90 per cent of its revenue from Canadian businesses. You know how little personal written mail there is these days. That method of communication has been eclipsed by many kinds of technology, most recently, email, so 90 per cent of the revenues of Canada Post are coming from Canadian businesses. Canadian businesses still rely on us to connect them to their customers. At the same time, we look at all Canadians as our customers because if people do not receive their mail and if they do not receive their mail when they thought they were going to receive it, that is a big disappointment for Canadians, and we try not to disappoint.
[Translation]
Our core operations are split into three lines of business: transaction mail, that is, the familiar white envelopes, direct marketing, a sector in which we are the biggest player in Canada, and, of course, parcels.
We also have three subsidiaries, the largest of which is Purolator, Canada's leading courier company.
[English]
We organized the business of Canada Post into three important business areas: white envelopes, which we call ``transaction mail,'' namely, statements, bills and invoices; direct marketing, where we are the largest player; and, of course, parcels. There is a parcel business that concentrates on business to consumer deliveries inside, unconsolidated Canada Post, and the logistics business, SCI Logistics, and, of course, the most important subsidiary, Purolator.
[Translation]
The delivery and logistics services provided by Canada Post allow Canadians to connect with one another and facilitate the transactions that keep our country tethered to the global economy.
[English]
I am proud to tell you about some of the outside validation that we have received concerning the operations of Canada Post. National surveys show that Canadians recognize the role that Canada Post still plays in their lives. For four consecutive years, we have been named one of Canada's top 100 employers. As you may know, 75,000 Canadian businesses vie to have a place in that top 100 list, and we are very proud to be included. We are also considered Canada's most trusted institution. Last year, an important global marketing survey of all the brands in Canada found that the most iconic brand is Canada Post. These are distinctions that make all of us at Canada Post proud, and it should also make you proud as representatives of our shareholder.
We have achieved these honours by staying focused on our core mandate, which is to deliver the mail in Canada. We deliver over 45 million items every day to 15 million different places in Canada across a huge geographic expanse, which is a logistical challenge that no other company faces.
We continue to achieve the results that I have cited even with our dispersed population because everyone at Canada Post is focused on doing a good job on every front. You may not realize that the delivery network of Canada Post grows by about 200,000 points of call every year. That means that the cost of serving Canadians goes up. However, the density of the mail, that is to say, the number of pieces that we deliver to every door, is decreasing. I think of each door or each mailbox as a possible revenue envelope available to Canada Post. That revenue envelope continues to be under challenge. However, the cost, because of the number of points of call we must serve, goes up every year.
Maintaining success in a postal business in the face of these important changes, which are occurring everywhere in the industrialized world, has not been easy.
[Translation]
The Canadian postal system is grappling with profound challenges that have been exacerbated by the global recession.
In 2009, we lost the equivalent of five years of growth across all lines of business. We expect it to be several years before volumes return to 2008 levels.
[English]
Volumes across all our lines of business were affected by the deep recession that we experienced, and they continue to be affected by continuing downwards trends in these businesses. Transaction mail, parcels and direct marketing are all doing less business today than they did in the past. That is largely due to the economic cycle, but the resulting challenge is global trends that affect this business as they affect all other businesses of this kind.
The traditional role of postal businesses is changing. Consumers and businesses are interacting in new ways; much more is being done online. Many of our biggest customers want to reach out to their customers in a multi-channel way. They are satisfied to use paper to connect with their customers, but they also want to use electronic channels of communication. Technology offers convenience, speed and affordability, and households and businesses expect that convenience in the digital age.
Our labour legacy is legendary, but we have been making great progress with our people. I am out in the field a lot, as is the entire management team at Canada Post, helping our people understand what it takes to be successful. We are trying to change the conversation at Canada Post away from the grievances of the past toward what it takes to stay successful in the future.
I hope never to appear before you being in the position of some other postal administrations around the world. My colleague in the United States, Jack Potter, is having a terrible time. He lost $4 billion last year, and he announced that over the next ten years the U.S. Postal Service will lose $238 billion. The United Kingdom postal service has also had very difficult challenges. This may be because those administrations did not have the freedom to modernize fast enough. A key to success at Canada Post is that we have done that modernization.
Since 2006 we have had a multi-year business plan that focuses on the modern post.
[Translation]
This plan calls for adopting new equipment and technology. It also focuses on diversifying our product offerings and responding to changing consumer habits.
[English]
In 2006, we started to put a detailed plan together to modernize Canada Post and fulfill our two mandates. The first mandate is to deliver the mail to all Canadians at a reasonable cost. The second mandate, which was given to us at the beginning, is to be financially self-sustaining, and if we are to be financially self-sustaining, we must adapt to the realities of our business, and we have to modernize and be more productive.
Last year we took steps in every area of the company to ensure that we stayed in the black. Our revenues were off plan last year, because of the financial crisis, by almost $500,000 million, which is a huge amount of money. This is kind of a fixed-cost business. We have lots of infrastructure, lots of buildings and lots of people.
We moved quickly and took about 12 per cent of our management positions out of the company. Three years ago, we put in place a productivity management and measurement system, which helped us a lot and paid huge dividends in 2009. We were able to run our operations and deliver the volumes that were entrusted to us with far fewer hours in our plants. In fact, we took 4.6 million hours out of our operation and we plan to take out another 1.1 million out this year. We did that by not using overtime, casual labour or relief workers when we did not need to. Our volumes were down and we had to manage the operation with that in mind.
We are also taking steps to be more efficient in different ways. We have reconfigured several of our mail processing plants. We are moving plant mail to where it can be automated and where we can handle the mail more efficiently. We are moving from smaller, non-automated facilities to facilities where we have the technology and equipment that will allow us to get the mail out more efficiently.
We are also looking at other aspects of our operation. We have many call centres at Canada Post. There are different ways and there is a new expertise that can be brought to the operation of call centres. This is what we plan to do over time as well.
These are different ways of doing business that actually increases the service to Canadians and to our customers but allow us to keep an eye on what is happening over the long term in our business.
We are also very mindful of what Canadians expect of us. Last September, the Government of Canada introduced the Canadian Postal Service Charter, which outlines the postal service that Canadians can expect to receive from Canada Post.
[Translation]
I am pleased to report that Canada Post is fully compliant with the Service Charter and is fulfilling its mandate. Furthermore, Canada Post continues to proudly serve rural communities. We understand the important role that post offices play in rural areas.
[English]
We have more than 4,000 offices in rural Canada, and I do not think there is any other organization that provides service that is more consistent to Canadians, regardless of where they live. We embrace those responsibilities. In fact, we are proud to do it. We know we are important, and we know that our retail network is very important to Canadians. In fact, last year, we continued to invest in the retail network. We now have electronic points of service rolled out to almost all the retail networks; 3,000 of those new technology rollouts took place in rural offices.
We are engaged in the same kind of delicate balancing act that I think all businesses have to manage today. We are making sure that our customers get what they have the right to expect of us. We are making sure that our service levels continue to improve. We are making sure that our people are able and have the tools necessary to deliver on the service commitments we have to make and, of course, we are trying to stay in the black, not just now but in the future.
We will invest about $2 billion to replace outdated plants and equipment and to train our people in order to give them more technology to do their jobs in a better and more efficient way in the future. We have already started.
I invite you all, whenever you have an opportunity, to visit one of our current processing plants, and you will see the struggle that our people go through to get the mail out. Much more positively, come to Winnipeg after June to see our first new mail sortation facility, the first one in over 20 years to be built in Canada. We are proud of that highly efficient sortation facility. It reflects our continued commitment to the business, and to doing the business in an automated and technology-driven way.
[Translation]
This new facility will ensure that Canada Post continues to meet its service commitments to Canadians. The plant will serve as a key building block of our future growth. It is an exciting opportunity.
[English]
It is only the first of several investments that we plan to make in the country in the coming years. Going forward, you can expect to see us invest in Vancouver, and automate the processing of parcels and packages in Calgary, Edmonton, Toronto, Ottawa, Montreal and Halifax.
We are also introducing environmental consciousness to what we are doing. Each of our new facilities will be LEED-certified. The new vehicles that we add to our fleet — and we have one of the largest fleets in Canada — will be more fuel-efficient. These investments are essential for us to deal with the trends in our business. They will allow us to automate and to operate more safely, in a more ergonomic and environmentally conscious way.
You can expect to see us continuously lower our carbon emissions. Very importantly, not to be missed here, is that these improvements to our facilities and our technology will save us about $250 million a year. We are doing it at a time when we can take advantage of the vast numbers of retirements that will occur over the next seven years. Unlike the U.S. and the U.K., where they have had to break promises to their people and they have had to lay off people to stay in the black, we will not have to do that. That is a very important consideration.
[Translation]
In addition to the investments we are making in postal transformation, Canada Post is working to offer new services to customers, online and through our expansive retail network.
[English]
You can automate and can you make your business go a further distance for you, but in a declining business, you have to do other things. You must also grow the business. If you do not grow the business in a new direction, the business will die.
We are planning for new areas of growth that will take better advantage of the retail network we have and that will help us bring more electronic communication to our business. We already have some, but we obviously need more. We need to be multi-channeled. We will look at ways that we can gravitate our current delivery business into other areas, as other successful postal businesses have done.
We have a big negotiation ahead of us with our major operating union, the Canadian Union of Postal Workers. I am optimistic that we will reach agreement with the Canadian Union of Postal Workers, our largest union, when we sit down to bargain in October or November of this year. We reached such an agreement in 2006.
[Translation]
I feel that employees understand the shifting nature of our business. I am out in the field virtually every month and so too is my management team.
[English]
We are out there in front of our people. I am on the receiving end of many emails and letters from our folks, and I know that our people understand the changing nature of this business.
[Translation]
They understand the need to change to remain successful over the long term.
[English]
Thank you for this opportunity. I look forward to your questions.
Senator Callbeck: Welcome, Ms. Greene. I want to ask you about the strategic review of the Canada Post Corporation, a copy of which is before me. It was presented in December of 2008. The recommendations in it are divided into five different areas. One area is on rural Canada. I come from rural Canada, and I am glad to hear you say that you recognize and understand the importance of the post office to rural Canadians.
What proposals did Canada Post make to this panel regarding rural Canada?
Ms. Greene: The most important proposal was to say that we are happy to enshrine our commitment to rural Canada in what in fact became a matter of government policy, the Canadian Postal Service Charter. We also made Professor Campbell and his colleagues appreciate that we completely respect the moratorium on the closure of rural post offices.
Another important consideration is that we know points of access are important to Canadians, and we wanted Professor Campbell to know that we are completely mindful and respectful of that.
Those were the two most important areas: the points of access and delivery in rural Canada. As long as it is safe, of course, we will deliver in the traditional way to Canadians who live in rural Canada.
There are 4,000 offices in rural Canada, 4,000 points of service, and the vast majority of Canadians living in rural Canada have access to postal services in a reasonably short distance. We try to preserve delivery as it has been traditionally done. I think honourable senators will see that there is a very strong commitment to rural Canada in our recommendations and in the direction that came to us following our recommendations by the Government of Canada.
Senator Callbeck: You say that you respect the moratorium on rural post offices, but the panel said that the government should replace the moratorium on rural post offices closing with a new approach.
What is your reaction to that recommendation? What has been done regarding that recommendation since they made it in December 2008?
Ms. Greene: The government has accepted some of the recommendations of the advisory panel, and taken others and tweaked them a bit. What the panel is getting at is we have had this moratorium in place for a long time, and things change in any retail network. People move, the post office burns down, in one case the post office actually blew away. The post office, in many cases, is in people's homes. The postmaster may become ill or retire or may die and the family no longer wants the post office in the home. I had a call from a widow whose husband had been a postmaster, and she asked to get the post office out of her living room.
Things change, and the panel was getting at the fact that sometimes it is difficult to treat a system as large as this one as if no change ever occurred and that some flexibility needed to be provided to a company as big as ours facing such a variety of circumstances. Some flexibility needed to be given in order for us to match a point of access with the reality — sometimes you cannot get someone to go to these areas. The population configuration of Canada has changed dramatically over the past 20 or 30 years when the moratorium was first put in place.
That is what the panel was getting at. The panel was saying there needs to be some flexibility to deal with situations that arise. Thankfully, for us the government appreciates that, but as much as it is possible to do so, we respect the moratorium on the closure of postal services in rural Canada. That is my understanding of what they were getting at, Senator Callbeck.
Senator Callbeck: Do you agree with that recommendation?
Ms. Greene: It is hard not to agree with the reality. People have this vision of rural post offices as if they were self- contained, historic buildings keeping a community together, and in some cases that is true. However, in many other cases, that is not true. We have post offices in the rural network that make less than $700 a year in revenue because not very many people need to access that particular postal outlet.
I agree that you need at least enough flexibility to deal with realities that arise, but the philosophy of our organization, the driving force of Canada Post is to try to maintain traditional services in rural Canada. Does that answer the question?
Senator Callbeck: I want to ask you about another question and that is the Canada Post pension. The deficit I believe is $2 billion.
Ms. Greene: Yes, that is correct.
Senator Callbeck: That was as of when?
Ms. Greene: December 2009.
Senator Callbeck: So how much of that came about in the year previous because of the downfall in the economy?
Ms. Greene: A considerable amount. There has been a high degree of volatility in the solvency deficit of our pensions and many pensions mostly because of discount rate.
Senator Marshall, please do not take this in a bad way, but as much as our accountants over the past 10 years have driven us to be more transparent, I am not sure we are quite there when it comes to pension accounting. The solvency deficit has fluctuated quite a bit over the five years I have been at the company because of changes in discount rates. It is important to note that on a going concern basis there is no deficit in the Canada Post pension; it has a surplus of $597 million. The solvency deficit is calculated in a different way where the discount rate that you use to calculate a solvency deficit is different than the discount rate you use to calculate a going concern is different than the discount rate that you use on an accounting basis for pensions.
In our case, the solvency deficit relies heavily on the rate of real return bonds, which has moved quite dramatically over the five-year period. The solvency deficit has gone from a $1.6 billion deficit five years ago to a $1.6 billion solvency surplus in year three to a $2 billion solvency deficit in 2010.
The reason the solvency deficit is such a difficult thing for us to manage at Canada Post is because the rules on paying for a solvency deficit require you to pay the deficit over a five-year period, and the cash drag of paying for the solvency deficit over that short a period of time is enormous.
For example, in 2010 we will put $800 million of cash into our pension. That is an enormous amount of money by anyone's imagination, and about $300 million is for regular contributions to the pension, but $500 million is for paying off, over the five-year period, our $2 billion solvency deficit. As discount rates change, of course, that number can change dramatically.
Our pension is so big relative to our company. Our pension liability is about $14 billion, and it sits on top of a company that has $7.3 billion of revenue and generally makes less than $100 million unconsolidated. You do not need to be Senator Marshall or an actuary to see that as a huge liability. Even the minor changes in the discount rate and the way in which you calculate these various matters of solvency and going concern deficit can have an important impact on how much cash you have to put into the pension. It is unmanageable because you do not know from one six-month period to the next how much you will have to put into the pension. It is hard to predict.
I am happy to say that our people enjoy a very good pension. It is one of the promises that were made to postal workers back to when we had the department of the post office. I am pleased to say I will be able to honour those obligations for now.
With our planned modernization and with our new way of looking for new sources of revenue for the business, we will never fall into the impossible situation the United Kingdom or the United States find themselves today. However, there is no question that the pension is a huge liability.
Senator Gerstein: Thank you, Ms. Greene, for appearing before us and thank you for a comprehensive presentation. I am particularly interested in the emphasis that you place on both yourself and your senior team in getting out into the field and meeting the people. This is clearly the only place you find out what service is all about.
I believe in your opening comments you mentioned it was 27 years ago that the post office became a Crown corporation. Within that context it was approximately 25 years ago that I had the privilege of serving as a director for a year or two. It stands out clearly in my mind because I recall a board meeting at which a presentation was made on the subject of email, and no one knew what email was all about. Needless to say, the world has changed substantially since that time.
By all accounts — and certainly what you have said this morning and what we have read — Canada Post has a difficult challenge before it to remain profitable. I suspect, as was the case many years ago, you have high fixed costs, which makes your company sensitive to any decreases in volume. At the present time, margins are narrowing and revenues are lower than planned. You mentioned in your opening comments the degree to which you focused on cost containment. You may want to comment on that, and whether there is much manoeuvring room left.
That leads me to the question of the basic model with which you are dealing. Do you see, as you look at the post office in the relatively near future, evolving with the current model that you have in terms of looking at new ways to increase revenue — to cut costs, et cetera — or is there a fundamental change in the model of the post office that sooner or later you will have to come to grips with?
Ms. Greene: That is, I think, the most important question that I am now dealing with. I think you have to do both. We have gotten ourselves into a very detailed plan to modernize, automate and make more efficient the business that we have, I think, fast enough. We are ahead of the curve. I will be able to take advantage of the large number of retirements that will take place over the next seven years. About 25,000 of our people will retire.
There is no question that that is not enough because it does not matter which way you look at it; the letters business is a declining business. It is a declining business mostly for the reason you cite; many of the business customers we have are looking to communicate electronically. They have not managed to get there yet.
There are all kinds of incentives and initiatives for people to communicate with their banks electronically. Right now, only about 4 per cent of Canadians are happy to receive their bills electronically as the only way they get them, but our kids will not feel that way. Our kids will have a different view of that when they want to pay their household bills.
We developed epost in 1997 with the next generation in mind. Now we need to reinvest in epost2, which we will do. We need to ensure that before our customers leave us — because they figured out a way to electronically link with their customers — we are in a position to say Canada Post was the secure paper message for 150 years, and Canada Post will be the secure electronic message for the next 50 or 75 years.
We definitely need to look to the future. We need to look to the future in other ways as well. This goes to the second part of your question about fundamental change.
We have the retail network and for many of the reasons that Senator Callbeck quite properly cites, we must have it. I am looking at ways to lever that network more effectively than we have in the past.
I am also looking at new businesses entirely. I think of companies like Nokia that started 100 years ago as a lumber company, and decade after decade realized that in order to create value for their shareholders they had to gravitate into wholly different areas of endeavour.
I think Canada Post is such an important company and has such an iconic brand that we have to think about that too. We have to think about moving the company into new areas of business and competing in new ways.
I will give you an example. Our direct marketing business is really a very important business for Canadian businesses. We are the prime vehicle that many Canadian businesses use to let Canadians know what goods and services they have available. That needs to be more online. I do not know what your children are doing, but my daughter checks eBay before making any serious purchase. She uses online shopping tools to do research on what she might buy.
We must be an online marketing offer as well. We cannot mire ourselves in one way of presenting offers to Canadians, which is what we do now on the paper side. I think we need to be online, because that is how younger people are finding out and how they want to find out about the offers available to them.
These are the two areas — electronic communication for transaction mail and online marketing offers for direct marketing mail — where we would build on what we have. However, we also need to diversify the revenue stream and be in wholly different businesses than we are today.
I note, for example, that many postal administrations have made a success of banking. New Zealand, for example offered a limited banking service, but about eight years ago, they moved into more financial transactions. Canada Post has over $1 billion of money order business. For many small businesses in Northern Canada that money order business operates as a bank for them. We do a lot of verification for credit card customers to ensure that the people showing up are the people who should get the card. We think this trust category of services can move in the future, as many postal administrations have done, into a more traditional and generalized banking offer. We are considering that now.
That goes to the issue of you cannot stand still. Yes, you have to automate and do the traditional business as best you possibly can for as long as you can but, at the same time, you have to look further afield and know that 20 years from now the way in which people see Canada Post will probably be different from how they see it today.
Senator Finley: Welcome, and thank you for your extremely perceptive views. I am reminded that Hewlett-Packard transformed itself from a printer business to an ink business.
I want to congratulate Canada Post on the approach they have taken over the last number of years in what is a very difficult business environment for them. I congratulate Canada Post on their success.
I would like to talk about productivity. Your core business is the movement of envelopes and parcels. To me, that represents a couple of major components, one of which is transport. You have to move from one location to another. The second part then becomes distribution. You are moving the stuff back out again. The third part is actual delivery, which is usually someone behind the wheel of a car, a van or on two feet. Your labour costs are extremely high. You mentioned this and your report cites this expense.
I am looking at the cost savings in sorting. How do you manage $250 million a year of improvements in your business, purely in that part, which I thought was already very mechanized?
Ms. Greene: The short answer is that the savings is not just in sorting; it is also, importantly, in delivery. We have not changed the delivery model at Canada Post for about 150 years. When I first came to the company in 2005, I was shocked at how much manual sorting of mail went on at Canada Post in all of the 565 letter carrier depots. Today, letter carriers at Canada Post sort up their route by hand, the same way they did 100 years ago.
Modern postal administrations do not do that anymore. All of the sorting is done in the plants and it is done right to the point of call. That is called sequencing of mail. That equipment and technology has been available now for 20 years; however, Canada Post has been slow to adapt.
The answer to your question is that the $250 million worth of savings will come in a number of areas, but it will come very importantly in delivery. We have many letter carriers who will be retiring over the next five years. As they retire, we will start sequencing the mail in the plants, that is to say sorting it, with new technology and equipment, right to the point of call. The two hours that letter carriers now spend every morning handling mail by hand for their walk can be reduced significantly. For sure, we can take one hour of that sorting time away. That will allow us to restructure the routes that letter carriers have so that they will have more time to actually deliver than they have today.
We will also be motorizing more of our letter carriers. It will be very much the delivery model followed by the United States for the past 15 years, where letter carriers will use their vehicles as kind of a mobile relay box. Because they are out on the street without the weight on their back, the way it is now, we believe they will be able to deliver to more points of call and the company will not be paying for manual sorting that goes on in 560 letter carrier depots across the country, or at least for an hour of that sorting process.
In addition, our plant equipment is very old. There are cases in Toronto, which is the most important hub for the sorting of letters and parcels, where we are using equipment that is in the U.S. postal museum. The equipment is so old that we have to bring people out of retirement to fix it.
I will say something somewhat provocative now. I think government does certain things really well, but in my experience, capital planning and capital spending, which requires long lead times and multi-year funding, is not one of them.
The problem has been that in order to put a plan of this magnitude together, four or five years of lead time is required before you get a new piece of equipment on the floor of a plant, because it is custom built to your addressing system, and in our case it is a bilingual addressing system. It is very hard to get these lead times, and then it is even harder to get the multi-year financial freedom to execute the plan. That does not say anything about the difficulty of helping people adapt to change, which is of course the hardest part.
The equipment and technology available today is much better, even in the case of sorting, than the equipment we are working with. The multi-line optical character readers today can process mail much faster than it could 40 years ago, and with far fewer errors. The readers are able to read from higher distances and with greater accuracy. This is not all in sorting, but partially. It is, importantly, in the new delivery model.
Senator Finley: Much of it is with a future eye to fewer people being involved in the process, is it?
Ms. Greene: Yes. I have been up front about that for five years. In the future, the delivery of mail will require fewer people than it does today. In fact, even with the antiquated equipment and technology that we have today, if you are measuring your productivity — which we only started doing three years ago — and you are managing to that measure of productivity, you can operate with the volumes you have, with fewer people than we currently employ. We had been pretty slack about hiring casuals and giving overtime. I think you absolutely have to give overtime if you need to meet your service requirements to get the mail out, but if you do not need to give overtime, you should not. You do not know how much labour you need on any given shift unless you start measuring and managing, which we now do.
That goes to the question of whether there is still room to take more hours out of the operation. We are probably at the limit now, given what we have been doing over the past three years. In 2010, our volumes have not recovered, so we will definitely continue to manage carefully and take hours out.
There is a lot that can be done with new equipment, technology and training that will allow us to operate even a declining business with fewer people. I think our people understand that we have to do that in order to protect the promises that we have made to them.
About four years ago, I said to our people that I understand that the CUPW executive would like us to hire more and more people; and I know there was a time when Canada Post could think of itself as an employment engine, but those days are gone. We have to be productive. I made them laugh when I said that I do not really care about the unborn postal worker; I care about you, the people who are currently employed. If I am to make good on the promises that we have made to you, I have to pay close attention to what we do and how many people we hire for the future. When you hire someone at Canada Post, it is a lifelong commitment.
With all the communications work we have done out in the field, every single one of us now explains this to people. From the emails and the letters that I get, I think our people understand that.
Senator Finley: Is Purolator a fully owned subsidiary of Canada Post?
Hon. Senators: No, it is almost 92 per cent fully owned.
Senator Finley: What is the business relationship of Purolator to Canada Post? Does Purolator automatically get Canada Post business, or does it have to compete with FedEx or UPS?
Hon. Senators: It has to compete with FedEx and UPS, just as we do, because there are two parcel businesses. One is in Canada Post unconsolidated, which concentrates on parcels coming from businesses to the consumer. For example, if Bell wants to deliver a handset to your house as opposed to your business and is not a multi-piece shipment, Canada Post unconsolidated would do that delivery.
Purolator concentrates on business-to-business parcels. For example, if Dell is shipping 200 computers to a downtown insurance company, that shipment is multi-piece, so Purolator would handle that. Purolator has to compete with FedEx and UPS, and Canada Post has to compete with FedEx and UPS every day.
In many cases, though, we are now finding that the large business customers have many different shipping needs, and they want to deal with the Canada Post group of companies as a group of companies. That was not the case even three years ago. Many of them were prepared to say: For this part of my business, I will go to these players; for this other part, I will go to these players.
Now, for large customers like Rogers or Walmart, for example, we will bring the whole group of companies to them. We will bring the logistics company, SCI; we will bring Purolator for the business-to-business parcel business and the express business; and we will bring Canada Post for the business-to-consumer parcel business, or for any other aspects of the unconsolidated business, such as direct marketing in the case of Rogers, or epost. Rogers is a very big epost customer as well. For the big customers, it makes a huge difference for us to be a full service provider of all kinds of communication and delivery. The big customers are increasingly going that way.
In answer to your question on competition, competition is fierce in the parcel business and in the direct marketing business. You can lose a direct marketing contract in this country for less than a sixteenth of a cent per piece. You have to be on your game, and I am so glad that you, senators, are very knowledgeable about our business. I think some people think we are getting $7.3 billion of revenue from selling stamps. These are big multi-year contracts that are incredibly competitive. It takes all of our sales forces working together to win them. They are multi-year contracts, and there are hundreds of millions of dollars in contracting that you must pay attention to for the big customers.
Purolator is a strategic acquisition for Canada Post. We could not have a full offer in the marketplace without Purolator. In my first or second year on the job, I used to get letters and calls every now and then asking if we would sell it. Of course, some of my competitors would be very fast up at bat to buy it because between Purolator and the Canada Post parcel business, we continue to enjoy a lot of confidence in the market. Even with the fierce competition, I was just so pleased to see our customer scores. In almost every segment of the parcel business, Canadians and Canadian businesses value what we offer.
It is a very big part of the business. Doing business today, you have to be very flexible and you have to be listening. What do your customers want you to provide, and how do you adapt the offer of every segment of your business to be there? It takes all of us to do it; that is for sure.
Senator Ringuette: Regarding your statement that 90 per cent of your annual revenue comes from businesses, what is the percentage of your cost in comparison to that business revenue?
Ms. Greene: I wish could I give you a bumper sticker answer to that, but I cannot because it is tricky. There is no question that 60 per cent of our costs are in delivery, and about 40 per cent of our cost is in sortation and other. However, in order to do the business, businesses want us to connect to all of those points of call. The answer to your question is a little difficult. They would probably like us to get to every point of call at less per point of call than we currently do, so that we could reduce our rates to them. What customer does not want cheaper rates? The honest answer is I do not look at the business that way.
The Chair: If there is any question that you would rather take some time on and provide a written answer, you can do that as well, and your colleague can make note of those questions.
Senator Ringuette: I would certainly appreciate that, and I know that with all the expertise that you have at Canada Post, that can be arranged.
How much of your revenue is national and how much is international?
Ms. Greene: Out of $7.3 billion, $250 million is international.
Senator Ringuette: You have not discussed the court challenges that Canada Post had to face concerning the U.S. Postal service, FedEx, and remailers. I believe that you won both cases. In the case of remailers, it is about the exclusive privilege of Canada Post, and I would like to have your impression of that.
Ms. Greene: In a way, the whole remailer business is a kind of flag of convenience business. It would not exist if there were not different international rates for developing countries than there are for developed countries, and there was not the possibility of arbitraging it. The people in the remailing business are generally large, developed country posts.
I am pretty open, and I am on record. I favour open markets. It has served Canada well, and in this past recession, if we had not been able to come together globally as countries to support open markets and globalization, including in finance, we would not be seeing the kind of recovery that we are seeing.
It is tricky to deregulate an industry. I once was directly involved in the deregulation of transportation; in fact, it was my file, so I know how tricky it can be to deregulate an industry because there are always some participants in the industry who make money on the old regulatory barriers. You must be careful, as you take those barriers down. In the case of postal administrations, some governments have been very careful and some governments have been less careful.
We have more obligations at Canada Post than any other participant in the market. That has historically been the case and it remains the case today. We deliver to everyone at the same price regardless of where they live. Other participants do not have that obligation; they can choose where they will deliver.
Governments have traditionally paid for that service to all Canadians by reserving a portion of the market to the participant that has the obligation, that being Canada Post. That means that you do not have an open access market, and at a certain point technology overtakes you and the regulatory barriers are not as impenetrable as they have been in the past. Remailers overtake you; they find a way to take the mail out of the country, induct it somewhere else and bring it back in. At a certain point, the regulatory model becomes porous, and that has happened in postal administrations around the world.
I believe our governments have been very responsible. They have looked at Canada Post's obligations and at what we need to modernize. They put in place a policy response to the strategic review that gave us multi-year funding and access to financial markets to modernize. At the same time, they said that for now, they will protect most of the protected market but it is not possible to protect all of it considering what remailers have been able to do.
For us it is a revenue risk of $40 million to $80 million of a total revenue stream of $7.3 billion. We will vigorously compete for that business. Just because a market is competitive does not mean that Canada Post is out of the game. Look at what we have managed to do in the parcel business. It is the most fiercely competitive business in the country, and we are by no means out of that game. We are in there ensuring that our share of the market stays with us.
I understand what you are saying, senator. You worked for Canada Post so you know from the inside what the cost structure is like and the obligation is like. If we are not going to have a reserved market to pay for that obligation, something will have to give. Either it has to be a different obligation or there has to be some other way to pay for it. However, I do not think that remailers will put Canada Post under.
Senator Ringuette: Ms. Greene, you stated a minute ago that your revenue from international mail is $250 million. You also stated that the United States Postal Service, which does not have the exclusive privilege of outbound international mail, is consistently in the red. The U. S. taxpayers have put their money into USPS, because of that lack of exclusive outbound international privilege. Last year they contributed $4 billion. Because of deregulation and the resulting lack of revenue in the United Kingdom, the Royal Mail had to close 250,000 postal outlets in one year alone.
In 2008, during the mandate review, three quarters of the Canadians who made submissions to the panel said that they did not want Canada Post to be deregulated. Yet, before the report of the mandate review was tabled, the Government of Canada introduced a bill to eliminate exclusive privileges for Canada Post. Then we had an election, after which the government reintroduced the bill. Then there was prorogation, and now a bill, which for two years was a stand-alone bill in the House of Commons, is included in the budget bill. Do you not think that Canadians and the elected representatives of the population of Canada in the House of Commons should have a distinct say on the deregulation of Canada Post?
Ms. Greene: That is beyond my competence. You are the people who are the masters of the process of Parliament. However, I want to make it clear that the bill does not take away the exclusive privilege. It applies only to a tiny segment of the mail. If the bill took away the exclusive privilege, we would be having a very different conversation here today. I would be saying that we would lose hundreds of millions of dollars because I do not have a way to pay for much of this. However, that is not what it does. It affects a tiny subsection of the mail, and I believe that we can compete vigorously and successfully for that subsection. Of the many challenges that face Canada Post, I do not consider remailers to be anywhere near the top 10 list.
Senator Ringuette: I beg to disagree, and I think that the facts speak for themselves. You need only look at your statement with regard to USPS and Royal Mail.
Ms. Greene: However, remailers are not the reason the USPS is in the situation it is in.
Senator Ringuette: USPS does not have exclusive international privilege.
The Chair: To clarify the record, Ms. Greene and Senator Ringuette have been referring to Part 15 of Bill C-9, the budget implementation bill.
Senator Ringuette: Ms. Greene, could you explain to the committee what happened with regard to the court challenges on USPS and FedEx?
Ms. Greene: I do not know what court challenges you are talking about. I did not have a court challenge that I know of with USPS. There was a very large case brought by UPS, the private sector parcel business. It was a 10-year battle that had to do with how the NAFTA agreement applied to Canada Post. It went all the way to an international arbitration, and the federal government and Canada Post won. The allegation that UPS was making at the time that Canada Post was cross-subsidizing aspects of the business turned out to be incorrect. As a result, every year, we have to include in our annual report a costing study done by separate auditors of all the costs at Canada Post. We have to ensure that the exclusive privilege is not subsidizing the parcel business or the direct marketing business.
There was no court challenge with the United States Postal Service; it was with UPS, which is a very large private sector parcel and logistics company. I believe that FedEx may have been a party to it, but it was not the driving force of that challenge; that was UPS.
The Chair: Honourable senators, the Library of Parliament personnel have helped me out with Part 15 of Bill C-9.
The amendment proposed under Bill C-9 reads:
Section 15 of the Canada Post Corporation Act is amended by adding the following after subsection (2):
(3) The exclusive privilege referred to in subsection 14(1) does not apply to letters intended for delivery to an addressee outside Canada.
We will be dealing with that proposed amendment to your legislation in due course. It has been referred to this committee.
Senator Marshall: I thank you, Ms. Greene, for appearing here this morning. I want to compliment you on your opening remarks, which I found very informative.
I want to go back to a human resource issue, specifically the pensions. You did provide some preliminary information. I am referring to the December 31, 2008, report because I did not have your 2009 report at the time. I notice the balance sheet references a figure of $2.7 billion. I am assuming that is the deficit we spoke about earlier. During your remarks, you indicated that you funded the pension deficit in the past year to the tune of $800 million. Is that correct?
Ms. Greene: That is what we will be putting in for 2010.
Senator Marshall: Is that money you generate from operations or is that money that you borrow?
Ms. Greene: It is money generated from operations, but in the future, we will rely more heavily on our borrowing.
Senator Marshall: You said that you are funding the deficit over a five-year period?
Ms. Greene: Yes.
Senator Marshall: The financial statements refer to the pensions and talk about the post-employment benefit liability. How much of the $2.7 billion is post-employment benefit liability? I think there must have been a buyout. How material was that?
Ms. Greene: I will say not material, but let me get you the exact numbers. I do not have them in my head, but I will get you the exact figures. I promise to supply that information in the next day or so.
Senator Marshall: Has the post-employment benefit liability disappeared?
Ms. Greene: No, there are post-retirement benefit liabilities that we carry forward, and it is a pay-as-you go sort of thing. It is not funded.
Senator Marshall: Given the significance of the unfunded pension liability or the pension deficit, I notice that you talked about the transformation initiative. The number we saw was $3.1 billion, but you indicated that your borrowing limit was to increase from $300 million to $2.5 billion. Would that include the borrowing for the pension liability also, or would that be a separate borrowing?
Ms. Greene: No, it will not be a separate borrowing. We will have a single borrowing. I should make it plain that it is hard to trace a dollar and say it is going toward this and not toward that. The borrowing is fundamentally for the modernization of Canada Post. However, as we go forward, we will find it easier to manage our pension.
In one year, the asset value of the pension increased significantly as the market recovered. With respect to the whole discount rate situation, many people in the Department of Finance and the pension regulator are looking at that. They are also looking at the length of time you have to pay off solvency deficits and how you can pay them off. For example, a short-term solution by the regulator was to allow you to use a letter of credit rather than an actual funding for a period of time. That was a big help. If that is ever continued, that would be great. We are certainly having discussions with our regulator on those points.
I cannot really trace the $2 billion worth of borrowing that we are likely to do over the next several years and say ``this is going into that plant'' and ``that is going into that pension.'' As you know because you are a trained accountant and a former Auditor General, these estimates change dramatically in the face of the discount rate situation we have had.
Senator Marshall: The point is that there is a figure of about $3 billion, which is talking about the transformation initiative, and the pension liability is almost $3 billion as well. It seems you are saying that you will pay down most of the pension liability through money. Is it included in that $3 billion for the transformation initiative, or is it something in addition?
Ms. Greene: It will not be something in addition. We will have a $2.5 billion dollar borrowing limit, and unless the government chooses to change that, which I do not see happening any time soon, we will have to live within that borrowing limit.
I am looking at us spending $2 billion to $2.5 billion to modernize the facility and to help our people adapt to change, and I am looking at us probably having to commit another $1 billion to the pension. Therefore, I am looking at us managing close to between $3.5 billion and $4 billion worth of liability.
Returning to Senator Gerstein's question, that is why it is imperative that we modernize, but it is also important that we diversify and figure out a way to make money from new businesses.
Senator Marshall: With respect to the money, whether it is $2.5 billion or $3 billion, where do you borrow? Do you borrow through the Government of Canada, or do you borrow on your own?
Ms. Greene: We will borrow on our own.
Senator Marshall: With a government guarantee?
Ms. Greene: No, there will not be a formal government guarantee, as I understand it. You should put this question to our financial advisers. As we are a wholly owned entity of the government, we will enjoy the benefit of government cost of capital.
Senator Marshall: That is the point I am getting at because it is quite a significant amount of money that you will have to repay. How optimistic are you that you will be able to repay this over the long term?
Ms. Greene: Very optimistic. In fact, our financial model for the next 10 years has been scrubbed to death. Of course, we have all kinds of scenario analyses of ``what would happen if,'' but based on everything that I can see, including the kind of volatility that we have had to manage over the past four years, I am confident that we will be able to repay it. I will note that I have never felt that the capital structure of Canada Post made any sense. There is a permanent level of debt that a company this size should be carrying, and it is not $300 million. It should be at least $1 billion dollars.
You are a very knowledgeable group of people, and there will come a time when I hope you will invite me back and we will talk about the capital structure of Canada Post and the kind of capital it needs. I would love to have that conversation.
Senator Marshall: The Federal Auditor General, Ms. Fraser, carried out the special review I believe with KPMG. Who retains the services of KPMG? That will give us some insight into how those joint audits are carried out. Did Canada Post retain KPMG or did the Federal Auditor General do so?
Ms. Greene: It was neither one. Both the Auditor General and KPMG, are our regular auditors. That has been the case for two or three years.
Senator Marshall: Who selected KPMG? Was it the Federal Auditor General or was it Canada Post?
Ms. Greene: The federal government always selects the outside auditor, and the federal government ensures that Crown entities are audited jointly with the Auditor General. The Auditor General has a legal responsibility to do these special examinations periodically and, like everything that is done in relation to audits of Canada Post, they are done jointly. Therefore, KPMG as our outside auditor participated in this special examination.
Senator Neufeld: Thank you for being here today, Ms. Greene. I am also a resident of rural Canada and I know that rural Canada depends heavily on Canada Post to provide its services. In the years I have spent in public life, I have not had many complaints about Canada Post, which is remarkable because people can always complain about Crown corporations.
You have had your debt cap raised from $300 million to $2.5 billion so you can modernize. You have told us that some of the equipment you have operating today is in museums in the United States, that it is antiquated and terribly out of shape. You have related that for many years previous governments thwarted the ability of Canada Post to modernize and continue in the modern world. Is that correct, or was Canada Post just poorly run?
Ms. Greene: I do not care who the shareholder is, whether it is the government or private sector shareholders; capital planning and capital spending is a challenge. I do not think Canada Post was poorly run. In fact, many of the executives that are an essential part of my team have thankfully been at Canada Post for many years and they have a lot of experience.
When you embark upon something that is comprehensive and affects the whole business and requires a lot of money, it is hard to do and easy to put off and fix small aspects of the problem. Maybe the time came in 2005-06, when we realized that you just cannot fix it any longer. I do not think it was a question of being poorly run, honestly.
Senator Neufeld: Do you agree it was thwarted to modernize to a certain degree from a capital side? If I take seriously, what you said about the equipment being so antiquated that some of it is in museums, it tells me that somewhere along the line — you have convinced me it was not poorly run; there were good managers — something must have gone wrong.
The Crown corporations with whom I have been involved and been responsible for in my political career do not experience that same kind of thing. Something must have gone awry. I do not want to continue that argument, but I think something like that must have happened.
Ms. Greene: It is difficult to get on the government's agenda. When people come to represent all of Canada in the houses of Parliament, I do not think they come to Ottawa with the number one thing on their agenda to modernize Canada Post. In fairness, they come to represent the people of Canada and they take a broad view of what they are asked to do.
One of the real difficulties of Crown ownership is that we ask you as members of these houses of Parliament to wear many hats. We ask you to wear your representation and your sober second thought hat, but we also ask you to wear your shareholder hat. It is hard for both of those hats to fit easily on the same head and at the same time. That is a reality of Crown ownership. I have spoken to others who have been CEOs or senior people in Crown owned entities, and this is not an issue at the federal level.
I am interested in your experience in British Columbia, senator, because I know some of the Crown owned entities in British Columbia in the past have had difficulty getting on the agenda.
Senator Neufeld: I can only speak for my experience and that is not a discussion for today. Maybe we can have that discussion at some other time. I appreciate your explanation about what a politician does. I differ from you a bit, and that is understandable.
Can you tell me what percentage of the cross Canada parcel delivery Canada Post has through its subsidiary and itself?
Ms. Greene: It is around 35 per cent. I will have to check the number for you.
Senator Neufeld: Is part of your project to grow that percentage of the parcel business?
Ms. Greene: I am at it every day.
Senator Neufeld: When I think about email and what Senator Gerstein talked about, my children seldom use letters or get mail. They get it off the Internet. I come from a different era and like to read the stuff, but you cannot send parcels by email. I would assume that to be a huge part of what Canada Post is looking at growing.
Ms. Greene: Absolutely, and we are investing in that business. We are putting new parcel and packet sorters on the floors of our facilities and putting technology under it to track and trace it just like FedEx and UPS.
This tracking system will let our customers know where their parcel is from the time of the order until delivery. We have put 7,000 scanners in the hands of our delivery personnel over the past two years so they are able to scan the parcel and see that it has been delivered. We are putting a huge amount of emphasis on those businesses; you are correct.
Senator Neufeld: Do you have a target of 100 per cent.
Ms. Greene: I will not say that.
Senator Neufeld: You are very optimistic, so you must have a high target. I usually set a target. I did not always meet it, but it gave me something every day to think about.
Ms. Greene: That business is so fiercely competitive that I approach it differently. I want profitable growth. I do not just want to grow revenues, because that is the road to perdition. In that business, which has very vigorous competition, it is easy for sales forces to meet revenue targets at the expense of margin, and so my focus is a little different than yours, Senator Neufeld. I do not want to see us lose our presence in the market, but I am very focused, product by product, on margin.
The Chair: Senator Meighen is visiting today and replaces Senator Murray.
Senator Meighen: It is clear that Senator Gerstein won the prize for the question most often referred to this morning, and I will add to his laurel and halo by referring to it again. You have substantially answered the question, so this will be mercifully short.
My question goes to the area of other revenue lines, other areas of profitability, and you touched on this with Senator Gerstein and referred to the practice in New Zealand and Europe of postal outlets acting as banking financial institutions.
Can you elaborate? Would it require an amendment to the Bank Act? Is it something you are seriously considering? What else have you gleaned from your review of international best practices that might be areas worth exploring in terms of finding other ways to increase revenues?
Ms. Greene: How fast, how far, and how deeply we could go into banking services is just a consideration. We have a project underway at Canada Post. I have three wonderful senior colleagues at Canada Post who I call the ``trio for value,'' and their job is to come up with a revenue diversification plan for Canada Post.
It is one of the things we are looking at, but it would require a high degree of very detailed planning. I am nothing if not a very detailed planner. We could not have had the modernization plan we do without a huge amount of upfront planning work, and so too with banking.
We communicate regularly with postal companies around the world. We have seen New Zealand, where they started offering banking services in 2002, and by 2009, it was probably 30 per cent of their revenues and 70 per cent of their profit.
It is possible. It does not just leverage your existing retail outlets because, in some cases, in order to offer a successful financial offer it is actually not going to be appropriate in those outlets; it has to be in other places. We are looking at that and at Italy, which did the same.
Italy offered their banking services at the same time they entered the cell phone communications area. They became, in a short space of time, — I will say 24 months — the key wireless payment mechanism in Italy for small payments. They did a deal with a clearing house, and many of the things that had to be done internal to the banking establishment are not so today. Many areas of the back office can be outsourced, and that makes many new things possible.
I do not want you to have the impression that next year we will be banking; we will not. We are thinking about whether this is an area of revenue diversification that we can exploit the way other postal companies have.
There are other things we are more certain about, and that is the online offer. Canadapost.ca is one of the most visited websites in Canada, but there is not enough on it. I am grateful that many people come to canadapost.ca every day to find a postal code or the nearest retail outlet. I think canadapost.ca is a very important channel for the Canada Post of the future, an online channel.
Senators, 1.8 million Canadians use epost. It is the most secure way to transmit an electronic message because it is not an Internet-based system, it is a closed system. We are looking at pushing epost out to every household. Every address would have a physical address for the delivery of paper, and an electronic address. That is a necessary way for us to develop. We must be able to say to Canadians and Canadian businesses that we are the secure message deliverer, which we have been for over 100 years. We want to say that now we want to use a new channel and an electronic channel. That is more definite, pushing out an electronic box to every Canadian household.
In the direct marketing space, it is more definite that we must have more of an online component to the offer at Canada Post. That is how your children and mine, shop and comparison shop these days; they go online.
We allowed Canadian businesses and helped them grow. I like to think we have been a real engine for the growth of Canadian business through our direct marketing business that allowed them to present their offers and services to Canadians on paper. We need to do more than that. We need to have exactly those same offers presented to Canadians online because that is where they will go in the future and that is more definite.
I can see us moving to build on our core, which is as a communications company, really; the Canada Post communications company. We need to build on our core to put more of the offer in the electronic space. Then I can see us building out from that core to new areas where I will attract more people to the retail outlet.
My foot traffic is way down in our retail outlets. In fact, revenues in the retail outlets in the corporate offices are down by 10 per cent in one year. That is because ordinary Canadians do not need as much postal service today as they needed 30 years ago. The retail network still needs to be there to provide the service they need but I need to attract a younger pair of feet to that retail network. Maybe I have to sell things in that retail network that they do not get today, and that is more definite.
Senator Meighen: I encourage you not to discard the financial services because your retail outlets can attract them, particularly in rural Canada. Those of us who served for a number of years on the Banking Committee will recall that we have talked about second- and third-tier financial institutions in rural communities where there is little no competition. That may be an opportunity.
Ms. Greene: We are certainly thinking about it.
Senator Meighen: You did not answer my question about whether the Bank Act would need to be amended.
Ms. Greene: The answer is no. We are allowed to be in ancillary services. We would have to renew our bank charter, which we used to have years ago.
Senator Meighen: It is a shame you gave it up.
The Chair: It should be easy to get back. It is very interesting and an interesting area to pursue maybe at another time, Senator Meighen. Thank you for bringing that up.
Senator Dickson: I want to congratulate you, Ms. Greene, on an effective presentation. You are a super communicator. If Canada Post needs another salesperson, there is no question you are that person.
I am looking at the minister going forward with the advisory panel in 2008. I have very limited experience with Crown corporations but I have been around a bit, like Senator Neufeld and Senator Gerstein.
I am looking at the four guiding principles, the first being that it will not be privatized — we accept that and that is a fact — second, it will maintain a universal, effective and economically viable postal service. Principle three says it will also be an instrument of public policy. Principle four is having a reasonable return on equity.
Looking at the issue of public policy specifically and cultural change within the corporation, I have some sense that was a major mountain — and still is — for you to climb. It was probably a real force against any type of modernization.
Looking forward or retrospectively, if you were the minister would you put those same four guiding principles forward, or which of those guiding principles do you feel will inhibit the future direction and business case for Canada Post?
In relation to epost, is there a prioritization and action plan insofar as implementation of existing services or platforms that you have there to grow those faster than others?
Ms. Greene: I will deal with the second question one first. Yes, we are just putting the action plan together on the revenue diversification initiatives. For the past two years, we have had specific initiatives. There is always a huge amount of project underway at Canada Post because we are modernizing the whole thing. There are many projects that have to be managed.
However, for the last two and a half years, we have had a certain number of those projects specifically being designed and constructed to get new revenue. Putting more scanners out there to make the parcel business more competitive, to get new revenue and be able sell that scanning ability separately was an example. Also, the epost2 project, we are calling it, putting out boxes to all households over the next few years is being configured now. The answer is there will be an action plan.
On my score card for this year I, and my colleagues on my team, have to achieve $71 million of new revenue. Our board is very keenly watching that we meet all of those targets, including the new revenue and new product initiative targets. The answer is yes.
When you are trying to do anything in something as big as Canada Post, with so many people, so many facilities, and so much change and so much training, you have to do it that way. It must be structured and configured to get it out there, to get it done and it must be measured to ensure you do it.
With respect to the four guiding principles, I am a person who believes there is nothing in this world that is immutable. Things have to change. When they change and how they crowd themselves onto your and other people's agendas to get changed, I am no better able to predict that than you.
If I look at what has happened in Europe, for example, where you have seen some of the same trends happen in the decline of the traditional business, and then accelerate, making it more difficult for postal companies and postal administrations to stay mired in the same view of their mandate, they have had to change.
I think that will be an inevitable fact of life for Canada Post too. For now, we can keep the policy that we have today, but I think it is salutary for any organization, especially a Crown-owned organization, to have a look at that periodically. Every four or five years it is a good idea to have a look and ask whether this is still what we expect of this organization, whether this is still a reasonable view of what this organization can do and whether different things have to find a way forward. I think this is an okay policy set for now, but if I were here 10 years from now, I would be saying to you it is probably time for us to have a good look at those policies.
The Chair: We have been skating around the issue of increased revenues. You indicated that you need $71 million of new revenue. Are you and your board free to make the decisions as to where you pursue this new revenue or do you have to go back and get approval from the Minister of Transport or another minister of the Crown?
Ms. Greene: The way I have led Canada Post is I try to stay pretty close to my shareholder. If I was the CEO of any company, that is what I would try to do. I have two ministers, Minister Merrifield and Minister Baird, who are very approachable. It is my practice that if I am going to do something, I do not ever want to cause any of you grief. I want my shareholder to know what we are thinking about. That is the case with respect to our current business as well as our new business.
I do not think it is a question of approval. If I were to do something vastly different, completely outside the mandate of Canada Post, that would be different. What we are thinking about is clearly in the communications mandate and the ancillary services of Canada Post. It is not a question of approval but a question of ensuring that our shareholder sees the same value opportunity. The chairman of our board, Marc Courtois, and I have discussions regularly with our ministers about the business and how we are doing.
In answer to your question, there is something called the Financial Administration Act, which you probably know a lot about. There are restrictions in that act on how to do things. For example, if I was going to acquire a company, or if I was going to acquire shares of any kind, rather than build it internally, that is a restricted transaction and I would need Treasury Board approval and of course approval from our shareholder representative to do that. The ``how'' is more regulated than the ``what.''
The Chair: We have just discussed the revenue point of view. From the expenses point of view, do I go to the Financial Administration Act and the Canada Post Corporation Act to know the terms of your mandate and what you can operate within without having to receive either regulatory or statutory approval?
Ms. Greene: Correct.
The Chair: For example, are you reimbursed for the expenses you incur for free mailing for parliamentarians? In the Main Estimates, at page 1-66, you have payments to Canada Post Corporation of $22 billion. The $2.5 billion authority to borrow also appears on that page.
You have to obtain approval on certain items, and I would like to know what you must have approved. When the anthrax situation broke out, the government required higher levels of security. We now require higher levels of security for parcels going on airplanes.
Do you get additional revenue from the government when the government imposes additional responsibilities and obligations on you? You are trying to operate in a profit mode, but other people keep imposing expenses on you. How do you recover?
Ms. Greene: The answer is we recover as best we can. The government knows the real bill for government mail, because we have worked with the Sergeant-at-Arms and the Board of Internal Economy to put in place a shipping tool so you know the exact volume. There was an agreement on the price per piece. The problem with appropriations is that it takes a long time to catch up with the real bill.
Here is a thought. Some of you are on the Board of Internal Economy. Maybe you could take this up in those meetings. When you are sending out government mail, you are a customer; you are not acting as a shareholder but as a customer. When you are acting as a customer, I would like to be able to send you a bill and expect to be paid every 30 days, like every other customer, rather than rely on the appropriations process for payment. An example is when the Board of Internal Economy gets its light bill.
The Chair: We understanding the theory. It is clear. You do not have to repeat it. The $22 million in special services includes the free mailing?
Ms. Greene: Yes.
Senator Finley: I do not know whether Canada Post noted this as a possibility at one point or whether it was just our evil empire of journalists who brought it up. It was admitted at one point that Canada Post would attempt to negotiate some fee for every email transaction performed in Canada. Please tell me that is not part of your corporate plan now.
Ms. Greene: That is not part of my corporate plan, no. It is a nice idea if you could get away with it.
Senator Ringuette: Chair, and Ms. Greene, I hope you will accept another invitation of our committee, because I have quite a few questions I would like to ask.
One area we have not touched on is human resources. You indicated that you outsourced the call centres. There are a few call centres. How many did you outsource? How did you do it? I hope that they are within Canadian boundaries.
Ms. Greene: I have not done any yet. I am just planning to do it. Yes, it will always be within the boundaries of Canada and it will not affect any of our permanent people because I am doing it over a period of time to take advantage of attrition.
We have a need for call centres. Canadians need to contact us from time to time to find out about their mail or their parcels. However, we need to provide service in less than 200 seconds and we need to provide service that is at a similar cost base to what our competitors, FedEx and UPS, pay for that service.
Just to give you an idea, we get $8 of revenue from an average parcel. The margin depends on the product, but the total revenue average is $8. When someone calls the call centre, there is a $10 cost, so I can lose more than the entire revenue on the parcel if someone needs to speak to us about the location of his or her parcel. Therefore, I need to ensure that our call centres give service but that that service is provided at a reasonable cost.
We are not experts in the running of call centres. There are experts who have developed performance indicators from years of expertise in the business. We will be asking the experts in that business in Canada to handle a growing share of our calls.
Senator Ringuette: The short answer is you have not done any outsourcing yet, but it is in your plans.
Ms. Greene: Yes, it is in our plans.
Senator Ringuette: At the end of 2002, there were 12 vice-presidents at Canada Post. A few years later, there were 24; the number of vice-presidents had doubled. What is the number of vice-presidents at Canada Post?
Ms. Greene: I believe it is 16.
Senator Ringuette: That is a good call centre right there.
The Chair: Ms. Greene, there are many more questions we would like to engage in, but our time is designated by the Senate. On behalf of the Standing Senate Committee on National Finance, we would like to thank you very much for being here and for answering, in such a forthright manner, many different and diverse questions.
Ms. Greene: It has been my pleasure. Thank you for inviting us.
(The committee adjourned.)