Vol. 143, No. 26 — June 27, 2009

Regulations Amending the Letter Mail Regulations

Statutory authority

Canada Post Corporation Act

Sponsoring agency

Canada Post Corporation

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issue

The Canada Post Corporation Act requires the Corporation to provide universal postal service while establishing rates of postage that are fair, reasonable and sufficient to defray the costs incurred in the conduct of its operations. Canada Post delivers mail to all Canadians across the country, five days a week, to specific service standards. To assist it in this endeavour, the Corporation benefits from an exclusive privilege on the collection, transmission and delivery of letters. However, the economic value of the exclusive privilege has declined significantly in recent years.

Traditional mail volumes per capita are declining across the world, and Canada is no exception. A prime reason is the increase in electronic forms of communication such as email and text messaging. Bills can now be sent and paid on line, and large companies look to save on their mailing costs by combining billings into a single envelope. Overall, Canada Post saw volumes of Transaction Mail, which includes bills, statements, invoices, payments and other letters, decrease by 2% in 2008 compared with the previous year. The economic downturn that became evident in late 2008 will likely exacerbate this decline in 2009 and beyond.

While Transaction Mail volumes are decreasing, the Corporation’s cost base continues to rise each year, with the addition of approximately 200 000 new addresses that it must service — an estimated one million new addresses over the five years covered by this proposal. Delivering to these additional addresses adds over $25 million each year to the Corporation’s cost of operations, which compounds annually. Other costs also continue to rise, largely due to wage increases and higher transportation costs. Canada Post’s overall cost of operations is expected to rise by 3.5% for labour and 4.1% for non-labour elements in 2010.

To counteract its revenue losses and generate savings, Canada Post has developed a program of cost reductions and reduced expenditures. In 2008 the company reduced planned expenditures by $150 million, over and above the $90 million of savings that were already budgeted. Labour costs in processing and delivery operations were reduced by some two million hours, and there have been cuts to discretionary spending such as travel, marketing, advertising and training. The company also announced a 5% reduction in its management workforce in the first quarter of 2009.

Although Canada Post remains committed to reducing its costs, these cost containment measures are not sustainable over the long term. Given that over two thirds of Canada Post’s costs are relatively fixed and required to meet the universal service obligation, cost cuts are less achievable each year without an impact on service. The Corporation cannot fully adjust its costs to align with declines in revenue.

A truly Modern Post is heavily dependent on logistics, efficient operations and modern infrastructure. Like many Posts across the world, Canada Post has embarked on a program of infrastructure renewal to bring its network up to modern standards, replace antiquated equipment, upgrade software and modernize its facilities and processes for more efficient, safer and greener operations. A new mail-processing plant is being built in Winnipeg, due to open in 2010, and upgrades to many other plants and depots are in the planning stages. Making these important changes now, just as up to a third of the Corporation’s current employees are looking to retire, will help Canada Post control its costs over the longer term.

Under the current Letter Mail Regulations, increases in the domestic basic letter rate — the price for sending a letter weighing up to 30 g anywhere in Canada — are determined in accordance with a price-cap formula, introduced in 2000, set to two-thirds of consumer inflation as reflected by the Consumer Price Index (CPI). The price-cap has ensured modest and predictable basic letter rate increases for Canadians and provided Canada Post with predictability in planning revenue. However, the productivity gains it requires to enable the Corporation to keep pace with inflation are less achievable with each passing year, particularly given the continual expansion of the postal network to match demographic growth. The price cap also does not adequately reflect Canada Post’s costs in operating the postal service, in particular its rising costs for labour, fuel, transportation and network expansion.

In recognition of the growing need to address these challenges, the increase to the basic letter rate that took effect in January 2009, to 54 cents, was one cent above the rate that would have been afforded by the price-cap formula alone. However, a longer-term solution is needed, to provide consumers with the assurance of transparent and predictable rates and at the same time provide Canada Post with the necessary revenue to help sustain postal service over the longer term.

The need to find a longer term solution for addressing Canada Post’s financial pressures, to ensure it can continue to meet its service obligations to Canadians, was described in detail in the report of the Advisory Panel to the Minister on the Strategic Review of the Canada Post Corporation, made available to the public in April 2009. The Panel recognized the inadequacy of the current price cap formula and that a one-time significant increase for letter mail might be needed to ensure that Canada Post remains financially self-sustaining and able to meet its universal service obligation over the long term. The report is available on line at www.cpcstrategicreview-examenstrategiquescp.gc.ca/index-eng.html.

Objectives

These amendments to the Letter Mail Regulations, effective January 11, 2010, would establish the domestic basic letter rate — the rate for sending a letter weighing 30 g or less anywhere in Canada — for the next five years. This five-year pricing plan would replace the price-cap formula that has held increases at one third below the rate of consumer inflation for close to a decade.

An increase in regulated letter mail rates would help to ensure that Canada Post’s costs in meeting its service obligations continue to be borne by those using the postal system, rather than through any form of government support or subsidy. The amendments would help Canada Post meet its statutory obligation to conduct its operations on a self-sustaining financial basis and continue to provide an excellent postal service for all Canadians. At the same time, stamp increases would remain modest and predictable. Canada Post is obliged under the Canada Post Corporation Act to ensure that rates are fair and reasonable.

Description

This proposal would prescribe the basic letter rate for the next five years. This would ensure that postal costs remain transparent and predictable for Canadians and Canadian businesses and would provide Canada Post with the financial means it needs to meet its various obligations.

The proposed rates for a standard domestic letter weighing 30 g or less are as follows:

• as of January 11, 2010, $0.57;
• as of January 17, 2011, $0.59;
• as of January 16, 2012, $0.61;
• as of January 14, 2013, $0.63; and
• as of January 13, 2014, $0.65.

Based on Canada Post estimates, the average Canadian household buys 45 stamps a year. On a per-address basis, therefore, these proposed rate increases represent an average increase in postage costs of just over $3.00 a year over the five-year period. If the Permanent^TM stamp is purchased in advance of rate changes, the per-household impact would be even less.

The amendments would repeal the price-cap formula, in place since 2000, which has held stamp increases at one third below the level of consumer inflation. Given the repeal of the formula, the associated requirement to provide six months notice of increases to the basic letter rate as determined using the formula, through a notice in the Canada Gazette, is no longer needed in the Regulations and would also be removed. The practice of providing six months notice of price increases to occur the following January will continue, however, given the importance of such notification to Canada Post’s customers.

Regulatory and non-regulatory options considered

In keeping with its statutory obligation to conduct its operations on a self-sustaining financial basis, Canada Post is working to ensure that its costs are financed by users of the postal service, not taxpayers in general. Letter mail is a regulated product, given that Canada Post has an exclusive privilege for letter mail under the Canada Post Corporation Act. There is thus no alternative to a regulatory amendment to change letter mail rates.

Consideration was given to raising the domestic basic letter rate through a reconfiguration of the existing price cap formula based on full CPI or a commercial price index that would more fully reflect Canada Post’s operating costs rather than consumer costs as reflected through the Consumer Price Index. However, given concerns expressed by the Standing Joint Committee for the Scrutiny of Regulations with respect to the inclusion of a formula in the Regulations, preference was given to a simpler regulatory solution that would provide full transparency and predictability of rates for Canada Post’s customers for five years.

The requirement, associated with the price cap, to provide six months notice of price increases taking place the following January would be removed from the Regulations but such notification would continue to be given as a matter of Canada Post policy.

Benefits and costs

The proposed rate increases are designed to ensure that the Corporation is able to continue to provide an efficient postal service while at the same time meet the objective of the Canada Post Corporation Act to be financially self-sustaining and of the Financial Administration Act to be profitable and not dependent on government appropriations for its operating revenue. In doing so, the Corporation is ensuring that the responsibility of sustaining postal services in Canada continues to be borne by the users of the postal system and not taxpayers.

The proposal would come into force on January 11, 2010. Consumers and businesses will be assured of predictable rates for the next five years, with only modest increases and comparable service levels. Canadian consumers and small businesses will continue to be afforded protection from increases to the basic letter rate through purchase of the Permanent^TM stamp, which will always be valued at the current domestic basic letter rate. At the same time, Canada Post will be provided with important financial relief beginning in 2010.

The amendment is expected to have little impact on the competitiveness of Canadian businesses. Canada Post is committed to protecting small businesses from the full impact of the proposed rate increase, and is developing a measure to shield those customers up to a specific threshold. This measure would be available to all contracted and meter customers, while those customers who transact with the Corporation through retail outlets will continue to have access to the Permanent^TM stamp ahead of the January rate increase. Larger businesses can continue to benefit from incentive rates, which are set at levels lower than the basic letter rate.

Even with the new rates, letter mail rates in Canada will continue to compare very favourably with those in other industrialized countries, despite the country’s vast geography, low population density, harsh climate and other factors that impact significantly on the costs associated with providing letter mail service. Canada Post has a statutory obligation to ensure that postal rates are fair and reasonable. The Corporation remains committed to ensuring its value to Canadians.

Consultation

The Canada Post Corporation Act requires a consultation period through publication of the regulatory proposal in the Canada Gazette. All representations must be sent to the Minister of Transport. They will be taken into consideration in the preparation of the final regulatory proposal.

Implementation and enforcement

The Letter Mail Regulations are enforced by Canada Post under the Canada Post Corporation Act. No increase in the cost of enforcement is expected as a result of the proposed changes.

The amendments would come into force on January 11, 2010.

Contact

Georgette Mueller
Director
Regulatory Affairs
Canada Post Corporation
2701 Riverside Drive, Suite N0980C
Ottawa, Ontario
K1A 0B1
Telephone: 613-734-7576
Fax: 613-734-8245
Email: georgette.mueller@canadapost.ca

PROPOSED REGULATORY TEXT

Notice is hereby given, pursuant to subsection 20(1) of the Canada Post Corporation Act (see footnote a), that the Canada Post Corporation, pursuant to subsection 19(1) (see footnote b) of that Act, proposes to make the annexed Regulations Amending the Letter Mail Regulations.

Interested persons may make representations with respect to the proposed Regulations within 60 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to the Minister of Transport, House of Commons, Ottawa, Ontario K1A 0A6.

Ottawa, June 27, 2009

CANADA POST CORPORATION

REGULATIONS AMENDING THE LETTER
MAIL REGULATIONS

AMENDMENTS

1. The definition “reduced consumer price index factor” in section 2 of Letter Mail Regulations (see footnote 1) is repealed.

2. Subsections 3(4) to (7) of the Regulations are repealed.

3. The portion of paragraph 1(1)(a) of the schedule to the Regulations in column II is replaced by the following:

Item	Column II Rate
1.(1)(a)	(i) as of January 11, 2010, $0.57 (ii) as of January 17, 2011, $0.59 (iii) as of January 16, 2012, $0.61 (iv) as of January 14, 2013, $0.63 (v) as of January 13, 2014, $0.65

COMING INTO FORCE

4. These Regulations come into force on January 11, 2010.

[26-1-o]

Footnote a
R.S., c. C-10

Footnote b
S.C. 1992, c. 1, s. 34

Footnote 1
SOR/88-430; SOR/90-801; SOR/2003-382

NOTICE:
The format of the electronic version of this issue of the Canada Gazette was modified in order to be compatible with extensible hypertext markup language (XHTML 1.0 Strict).