Vol. 149, No. 28 — July 11, 2015

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

Issues: The Canada Post Corporation Act requires the Canada Post 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. To remain financially self-sustaining and not be dependent upon taxpayers, Canada Post must also generate sufficient profits for capital investments, cost increases and inflation.

Description: The proposed amendments would establish the rates of postage for domestic letter mail items, U.S. and international letter mail, and domestic registered mail, effective January 11, 2016.

Cost-benefit statement:

Costs: The proposed rate increases for domestic letter mail represent a weighted average increase in 2016 of 5.4%. The proposed increases for U.S. letter-post and international letter-post represent a weighted average of 4.1% and 4%, respectively, with a combined weighted average increase of 4%. The rate for domestic registered mail would increase by 2.8%.

No increase is being proposed to the rate for a single domestic stamp, which is currently $1.00.

Benefits: The proposed rate changes would assure Canada Post of revenue to help meet its mandate of financial self-sufficiency. The revenue from the rate increase is needed to offset the revenue loss from the continuing decline in mail volumes occurring on account of digital substitution and the Internet. Since 2006, mail volumes have decreased by 1.4 billion pieces and in 2014, by 207 million pieces or 5.4% compared to 2013.

The proposed increases would help defray Canada Post’s costs in operating a national network delivering to more than 15.5 million addresses each day. Canada’s domestic letter rates would continue to compare favourably with those of other industrialized countries, despite the country’s vast geography, low population density and harsh climate.

Business and consumer impacts: For the average small business, the impact would be $13.96 annually. Larger businesses have access to commercial rates which are beyond the scope of these regulations.

According to Canada Post, the impact of the proposed rate increases on consumers is estimated at $0.97 annually, as the typical Canadian household buys fewer than two stamps per month.

“One-for-One” Rule and small business lens: As the proposed amendments prescribe fees for service, the small business lens is not applicable. The “One-for-One” Rule also does not apply, as the amendments do not impose an administrative burden.

Domestic and international coordination and cooperation: This proposal is not expected to have any significant impact on trade, or domestic or international coordination and cooperation.

Background

Canada Post’s mandate

The Canada Post Corporation Act requires Canada Post to provide postal service to all Canadians. Rates of postage must be fair, reasonable and, together with other revenues, sufficient to defray the costs the Corporation incurs in its operations. As a Crown corporation listed in Schedule III, Part II, of the Financial Administration Act, Canada Post is expected to be profitable and not be dependent on appropriations from its shareholder, the Government of Canada, for its operations.

The exclusive privilege is losing its value

Under the Canada Post Corporation Act, Canada Post has an exclusive privilege on the collection, transmission and delivery of letters within Canada to help it meet its service obligations. Letter mail is Canada Post’s most profitable product. Nevertheless, with the growing popularity of emails and other digital technologies for communication, the exclusive privilege is rapidly losing its value. Since 2006, domestic letter mail volumes have declined by 1.4 billion pieces or 28%, and this erosion is having a significant impact on the Corporation’s financial stability. In 2014, the decline was 207 million pieces or 5.4% compared to 2013.

Since the end of 2007, the number of addresses to which Canada Post must deliver mail has increased by 1.2 million to more than 15.5 million addresses, but the total number of pieces of mail being delivered to each address has declined by 32%. In 2014, the percentage decline per address was 6.1%.

Due to a number of factors, including declining letter mail volumes, increasing costs, the recession of 2008 and the difficult economic recovery, a significant labour disruption in 2011, a costly pay-equity settlement decision the same year, and significant pension obligations, Canada Post’s financial sustainability has become increasingly fragile. Canada Post recorded net losses in three consecutive years prior to recording a marginal profit in 2014. Net losses are projected for three of the next five years, including 2015.

Terminal dues are also a cost factor that must be addressed. These are a pricing mechanism between postal administrations designed to recover the costs of providing domestic delivery of mail sent from another country. They are subject to annual increases in accordance with multilateral and bilateral arrangements and represent a significant percentage of total costs related to U.S. and international outbound mail.

The transformation of Canada Post

While the shift to electronic delivery of messages is expected to cause letter mail volumes to continue to drop in 2015 and in subsequent years, the increasing use of the Internet is also creating new opportunities for Canada Post to transform itself. Canadians are quickly adopting online shopping and the company is benefitting from this trend through the growth in the delivery of e-commerce parcels and packets.

Central to Canada Post’s transformation is the Five-point Action Plan, which is intended to establish the foundation for a new postal system and return the Corporation to profitability and long-term sustainability. The components of the Action Plan include converting the remaining one third of Canadian households that currently have to-the-door delivery to community mailbox delivery, expanding access to postal service through franchises, streamlining internal operations, and addressing the cost of labour.

The fifth component of the Action Plan was the introduction of a tiered pricing structure for domestic letter mail on March 31, 2014. Under the new structure, customers who wish to purchase a single domestic stamp pay full price, with discounts available for customers who buy stamps in booklets, coils and panes. The new structure recognizes Canada Post’s costs for processing various forms of transactions through its retail and processing networks.

Issues

The Canada Post Corporation Act requires Canada Post to provide postal service to all Canadians. Rates of postage must be fair, reasonable and, together with other revenues, sufficient to defray the costs the company incurs in its operations. As a Crown corporation listed in Schedule III, Part II, of the Financial Administration Act, Canada Post is expected to be profitable and not to be dependent on appropriations from its shareholder, the Government of Canada, for its operations.

Objectives

The proposed amendments would increase a number of postal rates in 2016. These increases would help Canada Post meet its statutory obligations to conduct its operations on a self-sustaining financial basis and meet its responsibilities under the Canadian Postal Service Charter to maintain an accessible, affordable and efficient postal service for all Canadians.

Description

The proposed amendments would establish the rates for the following, effective January 11, 2016:

The current and proposed domestic letter mail rates are as follows:

Domestic Letter Mail 2014 Rate Proposed 2016 Rate
Standard letter    
  • up to 30 grams — single stamp
$1.00 No change
  • up to 30 grams — booklet, coil, pane
$0.85 $0.90
  • more than 30 g but not more than 50 g
$1.20 $1.25
Other letter mail    
  • 100 g or less
$1.80 $1.87
  • more than 100 g but not more than 200 g
$2.95 $3.07
  • more than 200 g but not more than 300 g
$4.10 $4.26
  • more than 300 g but not more than 400 g
$4.70 $4.89
  • more than 400 g but not more than 500 g
$5.05 $5.25

The current and proposed rates for letter-post items to be delivered outside Canada are as follows:

International Letter-post 2014 Rate Proposed 2016 Rate
United States    
  • 30 g or less
$1.20 $1.25
  • more than 30 g but not more than 50 g
$1.80 $1.87
  • 100 g or less
$2.95 $3.07
  • more than 100 g but not more than 200 g
$5.15 $5.36
  • more than 200 g but not more than 500 g
$10.30 $10.72
International    
  • 30 g or less
$2.50 $2.60
  • more than 30 g but not more than 50 g
$3.60 $3.74
  • 100 g or less
$5.90 $6.14
  • more than 100 g but not more than 200 g
$10.30 $10.72
  • more than 200 g but not more than 500 g
$20.60 $21.44

The proposed rate increases for domestic letter mail represent a weighted average increase in 2016 of 5.4%. The proposed increases for U.S. letter-post and international letter-post represent a weighted average of 4.1% and 4%, respectively, with a combined weighted average increase of 4%. The weighted average increase represents the average percentage increase across the various rates under consideration, taking into account the volume of mail associated with each particular rate.

The rate charged for domestic registered mail would increase by $0.25, from $9.00 to $9.25, an increase of 2.8%.

Regulatory and non-regulatory options considered

Given that letter mail, international letter-post and domestic registered mail are regulated, any change to the rates must be done through a regulatory amendment.

Benefits and costs

The revenue from regulated letter mail will help ensure the viability of Canada’s postal service.

No increase is being proposed to the rate for a single domestic stamp, which is currently $1.00.

The proposed increases to the regulated rates would have a minimal impact on Canadian households: an estimated $0.83 per year for domestic letter mail, $0.11 for international letter-post items, and $0.03 for domestic registered mail, for a combined impact of $0.97 per year. The increase in mailing costs for a small business is estimated at $10.98 per year for domestic letter mail, $1.42 for international letter-post items and $1.56 for domestic registered mail.

The introduction of the new pricing structure was the last time customers saw an increase to regulated postage rates. An increase in rates in 2016 would be the first in 21 months.

Small business lens and “One-for-One” Rule

As the amendments prescribe fees for service and do not impose an administrative burden on any business, the small business lens and the “One-for-One” Rule do not apply.

Rationale

The new rates would directly contribute to Canada Post’s financial integrity and, consequently, its ability to make investments to maintain an accessible, affordable and efficient postal service. Canada Post is a pillar of the Canadian economy and plays an essential role in keeping Canadians connected and in helping businesses thrive. Canada Post, along with its subsidiaries Purolator Inc., the SCI Group Inc. and Innovapost Inc., directly employs about 65 000 people and supports thousands of additional jobs in the transportation and related industries across the country.

Even with the new rates, letter rates in Canada will continue to compare with those in other industrialized countries, despite the country’s vast geography, low population density, harsh climate and other factors that have a significant impact on the costs associated with providing postal service.

Consultation

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

Implementation, enforcement and service standards

The 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.

Contact

Grégoire Crevier
Manager
Regulatory Affairs
Canada Post Corporation
2701 Riverside Drive
Ottawa, Ontario
K1A 0B1
Telephone: 613-734-7316
Email: Gregoire.Crevier@canadapost.ca

PROPOSED REGULATORY TEXT

Notice is 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 30 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.

CANADA POST CORPORATION

REGULATIONS AMENDING THE LETTER MAIL REGULATIONS

AMENDMENTS

1. (1) The portion of paragraph 1(1)(b) of the schedule to the Letter Mail Regulations (see footnote 1) in column 2 is replaced by the following:

Item Column 2

Rate
1. (1)(b) $0.90

(2) The portion of subitem 1(2) of the schedule to the Regulations in column 2 is replaced by the following:

Item Column 2

Rate
1. (2) $1.25

2. The portion of subitems 2(1) to (5) of the schedule to the Regulations in column 2 is replaced by the following:

Item Column 2

Rate
2. (1) $1.87
(2) $3.07
(3) $4.26
(4) $4.89
(5) $5.25

COMING INTO FORCE

3. These Regulations come into force on January 11, 2016.

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