BUSINESS

THE POWER OF CANADA POST

OTTAWA PREPARES TO PRIVATIZE CANADA’S NEWLOOK, PROFITHUNGRY POSTAL SYSTEM

GREG W. TAYLOR October 9 1989
BUSINESS

THE POWER OF CANADA POST

OTTAWA PREPARES TO PRIVATIZE CANADA’S NEWLOOK, PROFITHUNGRY POSTAL SYSTEM

GREG W. TAYLOR October 9 1989

THE POWER OF CANADA POST

BUSINESS

Like many corporate wars, the latest battle for the multibillion-dollar Canadian parcel courier service began with a minor skirmish. On Sept. 7, before a postal services review committee rates hearing in Toronto, Glenn Smith, president of United Parcel Service Canada Ltd., accused Canada Post Corp. of stealing customers with what he called subsidized and “predatory” pricing. United Parcel is the largest privately owned courier company in the world but was worried about competition from Canada’s much-maligned post office. When Smith’s accusations finally reached Canada Post president Donald Lander in Edmonton later that day, he took the attack as a compliment. Said Lander: “I thought, ‘Somebody finally recognizes that we’re here.’ It was great.” And Lander’s view was shared among Tory politicians in Ottawa last week, as the government prepared to launch a series of hearings into the possible privatization of Canada’s suddenly profit-hungry postal system.

OTTAWA PREPARES TO PRIVATIZE CANADA’S NEWLOOK, PROFITHUNGRY POSTAL SYSTEM

For Lander and Canada Post, United Parcel’s anger signalled a milestone in one of the most dramatic turnarounds in Canadian corporate history. Just eight years ago, the post office was a government department, $608 million in debt, employing one-quarter of the entire federal government labor force and carrying perhaps the country’s worst reputation for inefficiency. Angry labor unions and constant political interference beset the corporation. Now, four months after astonishing Canadians with the announcement of a $96-million profit on revenues of $3.4 billion for the 1989 fiscal year—its first profit in 30 years—Canada Post’s managers have created what they describe as an aggressive, private-sector-style company. Said Canada Post group vice-president William Kennedy: “There is no question that all of our competitors will take notice of us.” And with Canada Post confidently predicting it will start producing $278 million annually in profits by 1994, the Conservative government is stepping up the debate surrounding the possible sale of the Crown corporation. Harvie Andre, the minister responsible for Canada Post, told Maclean ’s that he expects the corporation to make the same average profit as any company its size. To do that, independent financial analysts say Canada Post will have to earn a 14to 15-per-cent return on investit ment, compared with last year’s five per cent. I Postal union leaders, who were scheduled to I resume serious bargaining for their next con^ tract this week, have threatened to strike over 5 the growing and contentious privatization isI sue. They say that Canada Post’s drive for

profits will destroy universal postal services in Canada.

But the government increased speculation last week that it is determined to privatize Canada Post with the announcement that the Commons consumer affairs committee, led by Conservative chairman Garth Turner, will hold public hearings on the subject later this fall. And Andre is already considering what type of buyer Canada Post should go to. Said the minister: “I’d look at some sort of widely held shareholdings. I’d like to see a lot of employee participation.” And Lander says that he is more concerned with postal operations than with privatization. “My job as the chief executive officer of this corporation is to run it for the shareholders, whoever they may be,” he added.

As a government department, the post office’s managers had little control over how it operated: labor contracts and all major spending were ultimately determined by the federal Treasury Board. And most appointments, from rural postmasters to the postmaster general, were made by politicians who also set postal regulations and policy. Said Andre: “A lot of

what was wrong in the past came from the effects of political interference and the pursuit of political goals that were sometimes disguised as social objectives.”

But in 1981, in what was seen as a desperate bid to get the post office under control, and after a bitter 45-day strike, the Liberal government announced the creation of Canada Post. At the same time, the government gave the new Crown corporation—struggling under a $608-million deficit—marching orders that appeared at the time to be all but impossible: break even by 1986.

The magician called upon to fulfil that mandate and turn Canada’s ancient mail-delivery system into an aggressive, efficient—and competitive—firm, was Michael Warren, the tall, patrician former Ontario deputy minister and head of the Toronto Transit Commission. Warren recalls that,when he arrived, he found the situation to be far worse than he had expected. Edward Lane, Canada Post’s corporate manager of regulatory affairs, said that Warren was astounded to discover that “there were no

financial reporting systems. People would get a bill and not know why or what it was for.” Lane added, “Nobody even knew what it cost to process a letter.”

Warren spent nearly five years in the job, and when Lander replaced him in February, 1986, he too said that he was surprised by the depth of the problems. At his first management meeting in Ottawa, Lander asked what he considered to be a simple question. He wanted to know how much mail Canada Post processed and delivered on any given day. But, recalled Lander, “The answer was, ‘We don’t know.’ ” He said that he was stunned by the response. “You cannot run a reliable distribution system without that type of information. It was somewhat chaotic,” said Lander.

Undeterred, Lander launched his drive to cut Canada Post’s dependency on the federal treasury and promised that it would soon be self-sufficient. To accomplish that, he cut back on the post office’s delivery promises, stressing reliablility over speed of delivery and eliminating its then-increasingly expensive and

impractical objective of next-day service.

Lander also invested millions of dollars on new technology to improve efficiency on what he describes as “the biggest distribution system in the country.” Using more than 150 outside systems engineers, the country’s mail processing was standardized, often cutting the number of handling steps in half. The engineers also introduced tougher production standards. Said Lander: “We had machines capable of processing 1,800 pieces of mail an hour, but they were handling only 600.”

But he says that he takes most pride in the establishment of the national control centre, a state-ofthe-art mail-monitoring system in Ottawa. At the centre, a communications and distribution team tracks mail loads, transportation systems and weather across the entire Canadian mail delivery system, around the clock.

As a result, problems such as an aircraft missing its connection or a developing storm can be addressed quickly. Lander’s cost-cutting and streamlining has not only been a profitable exercise, but productivity, measured by the amount of mail processed each hour, has increased by more than 17 per cent.

He also encouraged privatization by forging ahead with plans to replace hundreds of post offices with independent franchises set up in businesses ranging from flower shops to pharmacies. The franchises, operated by nonunion staff usually earning less than half of the $13 to $14 hourly rate of unionized postal workers, have proven to be both cheaper to operate and more accessible for most customers. They represent Canada Post’s boldest demonstration of privatization. Union and public attacks on the franchising program slowed some of the changes, but with support from postal minister Andre, there are now 2,600 franchises across the country and at least 400 more are planned.

Lander has also steered the post office aggressively into the retail marketplace, a move that would obviously appeal to future shareholders, but one that clearly angers private firms such as United Parcel. In the explosive national courier market, which one postal official said was largely created as a result of Canada Post’s own poor performance, the Crown firm has been fine-tuning its own courier service, known as Priority Courier. And Canada Post officials insist that their courier business is both self-sufficient and generates significant profits, but they refused, for what they described as “competitive reasons,”

to discuss any of the financial details.

Canada Post is also using its resources to compete in the lucrative $500-million directadvertising market through fliers that traditionally have been included with newspaper

delivery. As part of that initiative, Canada Post has created a new marketing strategy to convince retailers to have their fliers delivered door-to-door, either by its unionized mailmen or with nonunionized help.

Lander has also led the campaign to improve Canada Post’s public image, spending several

millions of dollars on teams of public relations and advertising specialists to sell the company and its products. Their job is to convince both the public, and employees themselves, that Canada Post is a service-oriented and competitive firm. As part of the program, they created a new corporate logo, grandly nicknamed the “Mark of Commitment,” and new corporate colors: red, blue and grey, replacing the traditional red, blue and white.

The private-sector style now ruling Canada Post is welcomed by many people in the business community who depend on the postal service to market their products. Terrence Belgue, president of the Toronto-based Direct Marketing Association, which has 600 member companies including IBM Canada Ltd., the Royal Bank of Canada and Xerox Canada Inc., said that the post office is finally “treating mail like a product” rather than as worthless paper.

Critics of the changes, including Canada Post’s own labor unions, say that the corporation is simply generating profits by cutting back on service. Darrell Tingley, first national vice-president of the Canadian Union of Postal Workers, which represents 80 per cent of the corporation’s workforce, said that the changes have been part of the post office’s and the Conservative government’s plan “to get Canada Post to have large profits and make it more attractive to private investors.” He claims that Canada Post could now provide door-to-door delivery in new residential areas for $34 million, or less than half of Canada Post’s 1989 profit.

Despite the massive make-over, Lander says that there are many more changes being planned to help push Canada Post’s annual profits to the $278-million mark by 1994, matching the 14to 15-per-cent return on investment Andre has called for. And as he strives towards that objective, he says that the private-sector approach will become entrenched in the way that the corporation conducts its business. Said Lander: “We’re obviously more attractive, but we are just beginning. It is becoming a full-fledged business in all aspects.” That attitude seems certain to trouble competitors, who realize that a postal service that acts like a business instead of a bureaucracy, is well on its way to becoming a formidable corporate challenger.

GREG W. TAYLOR