Changing needs of Canadians drive losses, as Transaction Mail volumes fall and Parcels revenue does not make up the shortfall
OTTAWA, ON, May 3, 2024 /CNW/ – Canada Post recorded a loss before tax of $748 million in 2023. Results were negatively impacted by the post-pandemic surge in parcel delivery competition, the ongoing erosion of Transaction Mail, and continued growth in addresses and delivery costs.
The postal service has confronted significant new challenges in recent years. In the post-pandemic parcel delivery landscape, competition has accelerated at a pace not seen in the company’s history. Canada Post’s estimated parcel delivery market share has eroded from 62 per cent prior to the pandemic to 29 per cent in 2023. At the same time, Transaction Mail continues to decline in both volume and as a revenue source. In 2006, Canadian households received an average of seven letters per week; in 2023, they received two. Delivering fewer letters to a growing number of addresses is compounding the financial pressures on the Corporation.
In 2023, revenue fell by $240 million, or 3.3 per cent, compared to the prior year, dropping across all three lines of business – Parcels, Transaction Mail and Direct Marketing. The 2023 loss before tax widened by $200 million from a loss before tax of $548 million in 2022.
The cost of operations in 2023 rose by $11 million, or 0.1 per cent, compared to 2022, largely due to higher labour costs, non-capital investments and depreciation expenses. This was partly offset by lower employee benefit costs driven by an increase in discount rates.
Under the Canada Post Corporation Act, the postal service has an obligation to serve all Canadians in a financially self-sustaining manner based on revenue generated by the sale of postal products and services, not taxpayer dollars.
But like so many other businesses, Canada Post needs to adapt to the dramatic changes in how Canadians live and work today to remain relevant and viable. Over the last 20 years, the amount of mail Canadians receive has declined by more than 50 per cent, while the number of addresses has increased by more than three million. This has resulted in lower revenues and higher costs.
Since 2019, Canada Post has been increasing parcel capacity and improving service across the country, as consumers have shifted to more retail spending online. However, growth in the parcel delivery business has not been enough to make up for the declining mail volumes and revenues. Intensifying competition in the parcel delivery landscape has created significant new challenges that the Corporation must address to ensure the viability of the national postal service.
Without changes to align the postal service to the needs of Canadians today, Canada Post projects larger, unsustainable losses in future years.
“Canadians understand our business model must change. They can see it in their mailbox. An operating model designed to deliver nearly 5.5 billion letters in 2006 cannot be sustained on the 2.2 billion letters we delivered last year. This trend is not unique to Canada.
Like other businesses, we need to adapt to what Canadians need, where they live, how they shop and use our services. Canada Post is committed to leading that change, building on the improvements we’ve made across the organization over the last few years. Canadians still value the importance of their national postal service, which is why we’re working in partnership with the Government of Canada to put it back on the path to long-term financial sustainability.”
“Canada Post is an essential service that connects Canadians from coast to coast to coast. The Government of Canada recognizes that Canadians have changed the way they use the postal service, while continuing to view its role as vital to the country, particularly in rural and remote communities.
We will continue to work closely with Canada Post to secure its long-term future. As announced in Budget 2024, the government is also considering how to leverage Canada Post’s portfolio of federal properties to build more housing for Canadians. We will ensure postal service is maintained as part of Canada Post’s mandate as a ‘service first’ organization focused on delivering the mail.”
In 2023, Parcels revenue declined by $91 million, or 2.5 per cent, as volumes rose by 10 million pieces, or 3.7 per cent, compared to 2022. Volumes rose due to increased competitive offerings, higher online shopping returns, and additional business from new and existing ecommerce customers. Improved service performance, the introduction of late induction in key markets like the Greater Toronto Area, and the 2023 launch of carbon-neutral shipping, also contributed to domestic volume growth. Domestic Parcels revenue declined despite an increase in commercial rates. The decline in revenue was partly due to decreased consumer spending, more lightweight items moving through the Canada Post network, and a decline in fuel surcharges linked to market rates. Competitive commercial consolidators also took more business from the conventional inbound postal network.
Transaction Mail revenue fell by $126 million, or 5.2 per cent, in 2023 as volumes declined by 117 million pieces, or 5.0 per cent, compared to 2022. This was largely the result of consumers and mailers continuing to shift to digital channels. Throughout 2023, regulated stamp prices remained at 2020 levels. In April 2024, Canada Post received Governor in Council approval to increase its regulated postage rates, which take effect May 6, 2024.
Direct Marketing revenue declined by $3 million, or 0.4 per cent, in 2023 as volumes increased by 17 million pieces, or 0.4 per cent, compared to the prior year. Total volumes in 2023 were below pre-pandemic levels, with the decline in revenue driven by economic uncertainty and businesses choosing digital marketing options. Canada Post Neighbourhood Mail™ revenue increased mainly due to new customer relationships and product development. Direct Marketing remains an important revenue generator as the company continues to look at solutions to help businesses and consumers connect.
In 2023, the Canada Post Group of Companies1 recorded a loss before tax of $529 million, compared to a loss before tax of $292 million the previous year. The Group of Companies results were due to the Canada Post segment loss. Purolator recorded a profit before tax of $293 million compared to $317 million in 2022, while SCI’s profit before tax was $14 million compared to $16 million the previous year.
In early 2024, Canada Post and Purolator announced the divestiture of 100 per cent of the shares of SCI Group Inc. (SCI) and Innovapost Inc. (Innovapost). The SCI transaction closed March 1 and the Innovapost divestiture closed April 15.