June 26, 2009 14:44 ET

Canada Post Proposes Five-Year Pricing Plan

OTTAWA, ONTARIO--(Marketwire - June 26, 2009) - Canada Post has submitted a regulatory proposal, in accordance with the Canada Post Corporation Act ("the Act"), to set the domestic basic letter rate (BLR) for letters weighing 30g or less for a five-year period starting January 11, 2010. The BLR would increase by three cents to 57 cents in January 2010, and rise by an additional two cents annually from 2011 to 2014. The proposal will be published in the Canada Gazette on June 27, 2009.

"A longer-term solution is needed to ensure that Canada Post can continue to meet its service obligations to Canadians, provide customers with the assurance of transparent and predictable rates, and address Canada Post's financial pressures in order to ensure it does not become a burden on taxpayers," said Moya Greene, president and CEO of Canada Post.

The five-year pricing strategy would allow Canada Post to address three specific challenges facing the company: the growing number of addresses Canada Post serves every day; declining lettermail volume; and the urgent need for critical infrastructure investment.

Canada Post delivers to 15 million addresses nationwide, and this number is increasing by approximately 200,000 addresses per year. Delivering to these additional addresses added an estimated $26 million in 2008 alone to the Corporation's cost of operations.

While the number of addresses continues to increase, the volume of lettermail each address receives is declining significantly. In 2008, the number of transaction mail pieces handled by Canada Post declined by 87 million pieces. The operational cost of delivering to each household is the same regardless of how many pieces of mail are delivered.

Finally, Canada Post has an urgent need to invest in equipment and its infrastructure. Much of the mail processing equipment has reached the end of its life cycle, and while the company is making every effort to maintain the machines in working order, the existing equipment has reached its technological and physical limits. The potential for negative impact on service rises the longer they remain in use.

These challenges were recognized by an independent advisory panel in its "Strategic Review of the Canada Post Corporation" report submitted to the Government in December 2008. The Panel noted that pricing for Canada Post's regulated products should ensure sufficient revenue and profitability to support financial self-sustainability while providing Canadians with reasonable postal rates. The panel suggested that a significant one-time stamp price increase for lettermail may be required to ensure ongoing self-sustainability.

The impact of this price increase to Canadian consumers would be minimal. If the Permanent™ stamp is purchased in advance of rate changes, there would be no impact. If consumers choose to wait until next year, the proposed BLR increase would represent $1.35 per household in additional postage costs in 2010, based on the average Canadian household purchase of 45 stamps a year.

Small businesses would benefit from a new one-time rebate that Canada Post is offering to offset the initial effects of the proposed three-cent increase in 2010. Small businesses could also mitigate the effect of stamp increases by purchasing Permanent™ stamps.

Large businesses would continue to benefit from incentive rates, which are set lower than the regulated Lettermail rates in exchange for mail preparation work-sharing requirements.

"Our 2010 pricing strategy is intended to better align our revenues with the rising costs of maintaining our universal service obligation," said Ms. Greene. "At the same time, we are looking at ways of reducing the costs of our postal operation in the long term while bringing improvements to customers."

Key to those long-term efforts are planned structural changes at Canada Post that would transform and modernize Canada's postal system. With these changes, Canada Post would be able to sort the mail faster and more efficiently and continue to keep mailing costs as low as possible in the future. The Corporation would be able to build a database of "clean" addresses, which would result in less undeliverable mail, improved delivery efficiency and reliability. For Direct Marketing customers, this would improve the return on their marketing expenditures. The Corporation would be able to trace mail more effectively from the time that it is inducted into the Canada Post system, until the time that it is delivered to the ultimate recipient.

Canada Post has also been steadily driving cost efficiencies to address the Corporation's financial challenges. In 2008, the Corporation achieved $240 million in cuts to planned expenditures by increasing productivity, leveraging attrition, standardizing operating procedures and improving information systems. These cost-cutting efforts have continued into 2009, during which a further $250 million reduction in planned costs will be achieved. This restraint program has included a five-per-cent reduction in the management workforce and a reduction of hours worked by approximately two million by the end of June.

Even after the five years of price increases envisioned by the Basic Letter Rate proposal, Canadians would still enjoy one of the lowest domestic BLRs among developed nations based on current trends.

Other rate adjustments for regulated products published in the Canada Gazette include a 2-cent increase to $1.00 for letters, cards and postcards up to 30g destined for the USA; and a 5-cent increase to $1.70 for letters, cards and postcards up to 30g to foreign destinations. See attached backgrounder for additional details.

Canadians have 60 days to express their views to the Minister of Transport regarding the proposals.



Canada Post Regulated Price Increases for January 2010

- Domestic Lettermail - Standard, non-standard and oversize Lettermail are regulated under the Canada Post Corporation Act. Canada Post is proposing an amendment to the Letter Mail Regulations to establish the rates of postage for the Basic Letter Rate (BLR - standard lettermail up to 30 g) for the next five years beginning in 2010. The BLR would increase from 54 to 57 cents in January 2010, and would rise by an additional two cents per year in each of the following four years.

The weighted average rate increase for the Standard Lettermail over 30 grams and Other Lettermail up to 500 grams is 3.3 per cent.

Canada Post is also proposing to split the single weight band for Lettermail over 200 grams up to 500 grams into three separate weight bands in January 2010 (200 to 300 g, 300 to 400 g and 400 to 500 g). The weighted average rate increase of the proposed price changes within the segmented 200 to 500 gram weight step is 7.1 per cent.

- USA and International Letter-post - Subject to regulatory approval, the price of postage for regulated Letter-post products including standard and non-standard and oversize letters for the USA and international destinations will increase a weighted average of 2.3 per cent and 3.0 per cent respectively in January 2010.

- Domestic Registered Mail - Subject to regulatory approval, registration service for Lettermail will increase by an overall weighted average of 6.0 per cent in January 2010.

Canada Post 2010 Rebate Program for Lettermail Customers

- All Canada Post contract and meter customers will be offered a rebate to offset the initial effects of the Lettermail price increase, up to the first $1,000 of Lettermail purchased in 2010. Contract customers will receive the rebate as a credit on their commercial account and meter users will receive additional postage credit from their meter suppliers, on a monthly basis.

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