BARRIE McKENNA

Season's greetings strikes sour note in declining post office

OTTAWA — The Globe and Mail

Canada Post is struggling with a steady decline in the number of letters mailed, an increase in the number of addresses it must serve, and a multibillion-dollar pension deficit. (Andrew Vaughan/The Canadian Press/Andrew Vaughan/The Canadian Press)

Canada Post senior vice-president Mary Traversy sounds slightly plaintive when she urges Canadians to continue the “timeless holiday ritual” of mailing holiday cards.

“Taking the time to send a card still is considered the best way to show you care,” says Ms. Traversy, who runs the post office’s traditional mail business.

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Sending Christmas cards is still big business. And according to a survey commissioned by the post office, three-quarters of Canadians intend to keep up the tradition by mailing an average of 20 cards this year.

But there will come a day soon when most of us don’t send Christmas cards, letters or anything else through the mail. The letter business is dying a slow death, in Canada and around the world.

Can the post office be far behind?

Twitter, Facebook, texting, online billing and e-mail are rapidly making the letter go the way of audio cassettes and Polaroid cameras. Addressed mail generates more than half of Canada Post’s revenue, and every year there’s less of it.

Last week, the U.S. Postal Service announced it is closing more than half of its 467 mail processing centres and cutting 28,000 jobs – moves that will lengthen typical delivery times. USPS lost $5.1-billion (U.S.) in 2011 and is headed for a $14-billion loss next year, as it delivers less mail to an ever-expanding number of addresses.

First-class mail volume drops by a quarter every five years in the United States.

In Britain, the Royal Mail, which is also slashing thousands of jobs, will deliver 62 million letters a day this year versus 80 million five years ago. By 2016, volume will shrink to 46.5 pieces per day.

The pattern is similar in Canada, where the volume of domestic letter mail has shrunk 17.2 per cent over the past five years.

As Canada Post chief executive officer Deepak Chopra put in the company’s annual report: letter mail is the company’s “bedrock,” and it’s eroding. Advertising mail is stagnant and less profitable.

The question Canadians must ponder is what to do about the post office as its raisons d’être become irrelevant.

Declining mail volume is only part of a troubled business model. Like most postal systems, Canada Post has a mandate to deliver the mail to all homes and businesses – the “exclusive privilege,” or monopoly, in the business of putting letters in Canadians’ mailboxes.

But every year, the number of addresses in Canada grows by 200,000. The result is that expenses are growing faster than revenues.

“The value of the exclusive privilege is diminishing given a continued decline in traditional mail volumes and the need to deliver universal service to a growing number of addresses,” the company acknowledged in its most recent quarterly report.

“Continued mail-volume declines is one of Canada Post’s greatest business risks.”

The company, which appears destined to lose money in the current fiscal year, has nearly as many retirees as it has employees. And every year the ratio gets more worrisome. The result is a $3.2-billion (Canadian) pension deficit. In 2010, it put three times more cash into the pension plan than it generated in pretax profit.

The math isn’t working in the post office’s favour. If Canada Post wasn’t a Crown corporation, it might well be in bankruptcy owing to chronic negative equity – meaning its liabilities exceed its assets.

Canada Post’s answer to its problems has been to raise postal rates and launch a $2.1-billion effort to modernize and automate its operations, largely with borrowed money. The post office says annual savings will reach $250-million by 2015 – largely by delivering more mail with 7,000 fewer workers.

More of that is inevitable because these efforts don’t address the deeper long-term dilemma for Canada Post and other postal services.

Some countries, such as Germany, have privatized mail delivery. Britain wants to eventually do the same with the Royal Mail, headed by former Canada Post chief executive officer Moya Greene.

Ottawa has insisted privatization isn’t on the table in Canada. Mr. Chopra says only revenue growth will save the postal service, without elaborating on exactly where the revenue will come from.

One option might be to use the post office’s network of 6,500 postal outlets to deliver other government services, such employment insurance, pensions and passports. Ottawa currently offers those services at a completely separate network of 600-plus Service Canada locations.

There will come a day in the not-too-distant future when the cost of maintaining the vast postal system becomes unsustainable because consumers and businesses simply stop buying stamps they don’t use.

Follow on Twitter: @barriemckenna

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