Canada Post Fears Retail Competition for Shipping
Canada Post has fully embraced the parcels business as a way to compensate for a steep drop in letter mail, but it now worries about potential direct competition from retailers for shipping.
“Our largest parcel customer could deliver their own goods,” said Canada Post CEO Deepak Chopra during the post office’s annual meeting in Ottawa on Friday, as executives of the crown corporation presented 2015 financial results.
Chopra showed a slide of Amazon’s new Boeing 737 Prime Air, the first of 40 planned by the giant ecommerce company, as a way to bypass traditional shippers, ensuring fast delivery at lower costs. Amazon is also looking at using drones to make deliveries.
Another threat is the fact that more Canadian retailers are offering an “in-store pickup” option for online orders, where customers do the legwork to get their goods and avoid shipping charges, Chopra said.
That underscored Canada Post’s message that while the corporation managed to turn a “modest” profit last year, big challenges remain – especially as the company is in the middle of contract talks with its largest union, the Canadian Union of Postal Workers, which represents 50,000 employees in two units.
Last year, the post office recorded a $63 million profit, and when affiliated companies like Purolator Courier are included, it was $136 million.
Wayne Cheeseman, Canada Post’s chief financial officer, noted that it was a very small profit, given that Canada Post’s revenues exceeded $6 billion, and when additional companies are included it was $8 billion.
“It’s a marginal reflection of the size of the organization,” he said. “We are not out of the woods yet.”
Cheeseman specifically noted that the company’s pension plan faces a solvency deficit of $8.1 billion as of June 30, 2016, a jump from $6.2 billion at the end of December, blamed on low interest rates.
“The pension plan obligations are larger than the business on its own,” he said, though union officials point out that the solvency deficit is a measure used in the event a pension plan is wound up, such as when a company shut its doors.
The pension plan actually has a $1.2 billion surplus, if measured on an ongoing basis, and the federal government has granted Canada Post a delay on making any back payments it owes until after 2017.
But Cheeseman argued that just one year of zero returns would cost the pension plan $1 billion, and during the financial crisis of 2008, the plan recorded a negative return.
The company wants to switch all new hires to a cheaper defined contribution pension plan, making it one of the most contentious issues at the bargaining table with the Canadian Union of Postal Workers.
Newly hired management employees were switched to a defined contribution plan in 2010. The new pension plan also applies to three other small unions, including a switch ordered in an arbitration decision related to rural postmasters issued this week.
Mike Palecek, national president of the Canadian Union of Postal Workers, whose strike mandate expires on Aug. 25, said his union will not back down on this pension fight.
“We are not surprised that Canada Post chose smaller unions to bully (into the change),” he said. “When we succeed in defending our pension plan, it will open the door” to roll back pension changes at other unions.