CANADA POST

CANADA POST

June 26, 2008 16:30 ET

Canada Post Responds to Cost Pressures with 2009 Pricing Strategy

OTTAWA, ONTARIO--(Marketwire - June 26, 2008) - In response to rising cost pressures, Canada Post is proposing an amendment to the Letter Mail Regulations to establish the rates of postage for domestic Lettermail for the next three years. The domestic Lettermail rate would increase from 52 to 54 cents in January 2009. The rate would rise by two cents per year in the following two years. Even after these rate increases, Canada will continue to enjoy the 3rd lowest rate of postage in the developed world.

Under the current Letter Mail Regulations, increases in the domestic basic letter rate have been restricted by a price-cap formula that limits increases to two-thirds the rate of inflation as reflected by the Consumer Price Index (CPI). The CPI has increased 14.5 per cent since 2002, while the price of a basic stamp has gone up only 8.3 per cent or 4 cents. This does not adequately reflect Canada Post's costs in operating the postal service - in particular rising costs for labour, fuel and transportation.

With the proposed amendment, consumers and businesses will be assured of predictable rates for the next three years. Canadians can also continue to cushion themselves against increases in the basic Lettermail rate by purchasing the Permanent™ stamp, which is always valued at the going basic Lettermail rate. Based on existing postage use, the impact on the average Canadian household will be 95 cents per year.

"Soaring fuel prices coupled with increased labour and delivery costs mean our margins are razor-thin, and very close to being negative," stated Moya Greene, president and CEO of Canada Post. "Canada Post has an obligation to continue to serve more than 14 million addresses while being financially self-sustaining. This company has not been a burden on taxpayers for 13 years. We want to ensure this does not change."

Canada Post manages the biggest and most intricate transportation network in Canada. Any increase in the price of fuel and energy has a significant and adverse effect on every aspect of the company's operations. Canada Post has the nation's largest transportation fleet. More than 12,000 vehicles are used to transport and deliver the mail daily, traveling close to 170 million kilometres a year. Total annual transportation costs for the company are estimated at half a billion dollars.

Canada Post's cost to deliver each letter continues to rise. While the number of Canadian addresses increases by about 200,000 each year, each household receives less mail on average than in previous years. The costs for a letter carrier to walk down a street remain the same regardless of the number of pieces of mail delivered.

The financial objectives of the corporation are not being met solely through rate actions. Canada Post has embarked on a series of programs aimed at enhancing operational performance, increasing employee engagement, standardizing operating procedures and improving information systems. These efforts reduced costs by over $90 million in 2007. The company will continue to work on such productivity initiatives to leverage attrition in the future.

Other rate adjustments for regulated products announced in the Canada Gazette include a 2-cent increase to 98 cents for letters, cards and postcards up to 30g destined for the USA; and a 5-cent increase to $1.65 for letters, cards and postcards up to 30g to foreign destinations.

Canada Post has also proposed to revise the specifications for oversize Lettermail, and to create new specifications and pricing for irregular oversize items. Oversize Lettermail will be split into two categories, based on the item's thickness, flexibility and shape. Canada Post is working with customers to mitigate the impact of these changes by giving them as much notice as possible and suggesting alternate packaging and shipping practices.

Price adjustments will also be applied to non-regulated products. Publications Mail rates will increase by an overall weighted average of 3.1% along with the introduction of a distance-based Letter Carrier Pre-sort price structure. Canada Post will also introduce a new formula to calculate the existing Parcel Fuel Surcharge. A description of all price adjustments is outlined in the attached background document.

"We have done our best to shield our customers as much as possible from the full impact of rising fuel, energy and labour costs. The overall pricing strategy has been designed to ensure no one segment of our customer base carries an unfair share of the burden of these rising costs," said Ms. Greene.

Detailed information on the regulated rates and other proposed rate changes is available in the Canada Gazette Part 1. Canadians have 60 days in which to make representations to the Minister Responsible for Canada Post regarding the proposed rate increases on regulated products.

BACKGROUND INFORMATION

Canada Post Regulated and Non-regulated Price Increases

- Domestic Lettermail - Standard, non-standard and oversize Lettermail is subject to a specific regulation and therefore must comply with the requirements of the Canada Post Corporation Act. The Act contains a price-cap formula that has limited increases in the basic letter rate to two-thirds of inflation since 2000.

Canada Post is proposing an amendment to the Letter Mail Regulations to establish the rates of postage for domestic Lettermail for the next three years (2009, 2010 and 2011). The domestic Lettermail rate would increase from 52 to 54 cents in January 2009. The rate would rise by an additional two cents per year in each of the following two years.

- Irregular oversize Lettermail - In January 2009, Canada Post is also introducing a new category, irregular oversize Lettermail, for items that are thick and rigid, or thick and have box-like edges. This category reflects the fact that these bulky items are problematic in Lettermail processing, often stopping or clogging our processing equipment. They must be processed in the more costly parcel stream rather than as letters or manually. Over a three-year transition period, Canada Post will move items that can't be processed as letters from Lettermail rates to Parcel rates.

- USA and International Letter-post - 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 3.3%. This is a reflection of the higher fuel and transportation costs involved in delivering these items.

- Incentive Lettermail™ - Overall, incentive Lettermail rates will increase by an average of about 4.6%. Incentive Lettermail consists of identical items of standard and oversize mail mailed and delivered within Canada. Incentive Lettermail price is a result of work share arrangements with commercial customers who presort and prepare their mail to specified Canada Post requirements, making it faster and easier for Canada Post to handle.

Currently two levels of incentives are offered: Presort and Machineable. Adjustments to the 2009 presort rates will reduce the price gap between pre-sorted mail and machineable mail from two cents to one cent, and maintain the gap between machineable mail and the basic letter rate of two cents.

- Addressed Admail™ - The overall weighted average price increase for 2009 is 4 %.

Addressed Admail used in direct marketing lets customers personalize their mailing and target their promotional messages to specific Canadian consumers or prospects. It is available in three categories: Short and Long, Oversize and Dimensional.
Addressed Admail will incorporate catalogue mail in 2009.

The Addressed Admail Short and Long Machineable rate, which is now based on items up to 50 grams, will be split into two bands: 'up to 30 grams' and '30 to 50 grams.' This is consistent with the current weight bands for Lettermail.

- Unaddressed Admail™ - Unaddressed Admail prices will increase by an overall weighted average of 6.4% in 2009.

In 2009 Canada Post is introducing a two-tiered basic and premium offering to reflect the additional value received with certain types of printed matter and product samples that are not addressed to specific addresses in Canada.

The premium offering will include Oversize Unaddressed Admail, which was introduced in January 2008. It will include samples, mail targeted to businesses and date specified mailings.

Unaddressed Admail can be targeted to areas and neighbourhoods based on demographic and geographic information, using Canada Post's database and Statistics Canada data.

- Publications Mail™ - Prices for Publications Mail, including newspapers, magazines and newsletters which meet certain specifications, will increase by an overall weighted average of 3.1% in 2009.

Canada Post will introduce three price categories to its distance based structure for letter carrier presorted mail (no increase for local, one cent for regional, and 3 cents for national) in order to provide our customers with more choice and better reflect the actual cost of transporting and handling publications. This structural change is consistent with National Distribution Guide presort service which will see no increase on local, one cent on regional, and 2 cents on national.

- Domestic Registered Mail and Do Not Forward Service - Registration service for Lettermail, which provides proof of mailing (a receipt) to the sender and proof of delivery (a signature from the addressee), will increase by an overall weighted average of 3.4% in January 2009.

- AdCard for Addressed and Unaddressed Admail - AdCard is advertising in a high-quality card format.

In 2009, the overall weighted average price increase is 2.6% for Addressed Admail and 5.1% for Unaddressed Admail.

- Business Reply Mail™ - In 2009, Business Reply Mail will have an overall average increase of 2.4%.

Business Reply Mail is a direct response vehicle used by businesses, publishers, government departments, fundraisers and other organizations to seek responses from recipients within Canada (Domestic) and from recipients around the world (International). International Business Reply Mail items destined for any member countries of the Universal Postal Union will be returned to Canada.

- Parcel Fuel Surcharge - Canada Post manages the largest and most intricate transportation network in Canada. As a transportation company, we are directly affected by the recent and significant escalation in fuel prices which have increased almost 30% this year alone.

To manage volatility in fuel prices, Canada Post employs a fuel surcharge that is adjusted monthly, upward or downward, as fuel prices change. To reflect recent new highs in gas prices and better reflect market changes, the fuel surcharge trigger points and the associated rates have been adjusted effective July 7, 2008. We will continue to monitor the situation and make adjustments as necessary.


Comparison of Domestic Lettermail rates (May 2008): http://file.marketwire.com/release/pa0626.pdf

Canada Post has the third lowest basic letter rate among industrialized countries

Contact Information

  • Canada Post
    Media Relations
    613-734-8888