Vol. 148, No. 7 — March 26, 2014
Registration
SOR/2014-48 March 7, 2014
CANADA POST CORPORATION ACT
Regulations Amending the Letter Mail Regulations
P.C. 2014-246 March 6, 2014
Whereas, pursuant to subsection 20(1) of the Canada Post Corporation Act (see footnote a), a copy of the proposed Regulations Amending the Letter Mail Regulations, in the annexed form, was published in the Canada Gazette, Part I, on December 21, 2013 and a reasonable opportunity was afforded to interested persons to make representations to the Minister of Transport with respect to the proposed Regulations;
Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to subsection 19(1) (see footnote b) of the Canada Post Corporation Act (see footnote c), approves the annexed Regulations Amending the Letter Mail Regulations, made on February 5, 2014 by the Canada Post Corporation.
REGULATIONS AMENDING THE LETTER MAIL REGULATIONS
AMENDMENTS
1. The definition “domestic basic letter rate” in section 2 of the Letter Mail Regulations (see footnote 1) is repealed.
2. (1) Subsection 3(1) of the Regulations is replaced by the following:
3. (1) The rates set out in item 1 of the schedule apply to an item of letter mail that meets the applicable requirements for standard mail.
(2) Subsection 3(3) of the Regulations is replaced by the following:
(3) The rates set out in item 2 of the schedule apply to an item of letter mail other than an item referred to in subsection (1).
(3) Subsection 3(8) of the Regulations is repealed.
3. Section 7 of the Regulations is repealed.
4. Paragraph 8(1)(b) of the Regulations is replaced by the following:
- (b) loose coins;
5. (1) Subsection 11(1) of the Regulations is replaced by the following:
11. (1) Every item of standard mail bearing a postage meter impression shall bear the address of the addressee, including the applicable postal code for that address.
(2) Paragraph 11(2)(a) of the Regulations is replaced by the following:
- (a) 35 mm from the top edge;
(3) Subsections 11(3) and (4) of the Regulations are replaced by the following:
(3) Paragraph (2)(b) shall not apply in respect of an item of standard mail that bears a postage stamp other than a postage meter impression.
(4) The postal code on an item referred to in subsection (1) shall be located on the last line of the address, or shall follow all other address particulars on the last line of the address if the postal code is separated from those address particulars by at least two character spaces.
6. (1) Paragraph 12(1)(d) of the Regulations is replaced by the following:
- (d) located not less than 15 mm from the top edge, 19 mm from the bottom edge, 12 mm from the left edge and 15 mm from the right edge of the item.
(2) Paragraph 12(3)(a) of the Regulations is replaced by the following:
- (a) where it is located on the front of the envelope, shall be located not less than 19 mm from the bottom edge, 12 mm from the left edge and 15 mm from the right edge and shall be outside the area prescribed in section 13 for the postage meter impression; and
(3) Subsection 12(4) of the Regulations is replaced by the following:
(4) No more than one auxiliary window may be located on the front, and no more than one auxiliary window may be located on the back, of an envelope referred to in subsection (1).
7. Subsection 13(1) of the Regulations is replaced by the following:
13. (1) The postage meter impression on an item of standard mail shall be located on the front of the item in the upper right corner not more than 40 mm from the top edge and 100 mm from the right edge.
8. (1) Subsection 14(1) of the Regulations is replaced by the following:
14. (1) If a return address, service indications or delivery instructions are marked on an item of standard mail that bears a postage meter impression, they shall be located on the front of the item in the upper left corner not less than 19 mm from the bottom edge. However, a return address may also be located on the back of the item near the top edge, centred between the left and right edges.
(2) Paragraph 14(3)(a) of the Regulations is repealed.
9. Subsection 32(2) of the Regulations is replaced by the following:
(2) No item of standard mail shall exceed 245 mm in length, 156 mm in width or 5 mm in thickness.
10. The schedule to the Regulations is replaced by the schedule set out in the schedule to these Regulations.
COMING INTO FORCE
11. These Regulations come into force on March 31, 2014.
SCHEDULE
(Section 10)
SCHEDULE
(Section 3, subsection 5(2) and paragraph 33(a))
RATES OF POSTAGE — LETTER MAIL
| Item |
Column 1 |
Column 2 |
|---|---|---|
1. |
Letter mail not more than 245 mm in length, 156 mm in width or 5 mm in thickness |
|
(1) 30 g or less |
||
|
$1.00 |
|
|
$0.85 |
|
(2) more than 30 g but not more than 50 g |
$1.20 |
|
2. |
Letter mail other than letter mail referred to in item 1 |
|
(1) 100 g or less |
$1.80 |
|
(2) more than 100 g but not more than 200 g |
$2.95 |
|
(3) more than 200 g but not more than 300 g |
$4.10 |
|
(4) more than 300 g but not more than 400 g |
$4.70 |
|
(5) more than 400 g but not more than 500 g |
$5.05 |
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. The costs associated with providing postal service increase every year, and Canada Post must therefore raise the rates charged for postal services in order to cover the costs of its operations and capital investments.
These proposed structural changes to the pricing of its regulated products are part of a Five-point Action Plan designed to return the Corporation to profitability. These changes will help ensure that the costs of maintaining postal service for Canadians continue to be borne by those using postal services, rather than through taxpayer-funded government support.
Description: Canada Post is introducing a new tiered pricing structure for letters mailed within Canada. The new pricing structure will benefit those who use the mail most and better reflect the cost of serving various customer segments.
Beginning on March 31, 2014, consumers and small businesses that buy stamps in booklets, coils and panes will benefit from reduced rates, representing 98% of the volume sold in this category. The price per stamp will be $0.85 for letters weighing up to 30 g mailed within Canada. Small- and medium-sized businesses that use postage meters will pay a new discounted postal commercial rate of $0.75 (per letter weighing up to 30 g).
Under the new structure, single stamps for letters weighing up to 30 g mailed within Canada will cost $1.00 each. This price reflects the high cost of selling stamps one at a time. Canada Post estimates that only 2% of all stamps are purchased individually. The vast majority of stamp purchases will qualify for the reduced rate of $0.85, which will be available if purchased within a booklet, coil or pane. For most customers, this tiered-pricing approach will represent between 15 and approximately 30% off the price of a single stamp.
The pricing for U.S., international and oversized letter mail and mail weighing more than 30 g will also increase, and will fall in line with the new establishing price levels. However, unlike letter mail weighing less than 30 g within Canada, the pricing for these products will not include a uniquely differentiated single-stamp price.
The Regulations will also remove “medium” letter mail from the Regulations as the product is rarely used, and make a number of technical amendments, such as relaxing certain restrictions on the placement of addresses and other markings on an envelope and removing references to “postage-paid-in-cash” impressions, which have been discontinued.
Cost-benefit statement
Costs: The price of a stamp for letter mail weighing 30 g or less when purchased in a booklet, coil or pane will be $0.85 on March 31, 2014, while the price of a single stamp will increase to $1.00.
Benefits: The differentiated pricing structure for domestic letter mail weighing up to 30 g will allow those buying stamps in booklets, coils or panes to pay less per item than those buying one stamp at a time. In 2012, over 98% of stamps at retail outlets were sold in the form of booklets, coils or panes.
The rate changes will help Canada Post to continue to fund its operations from its revenues, without needing to rely on taxpayer funding. Canada Post Corporation is committed to remaining financially self-sustaining and meeting its obligations to Canadians under the Canada Post Corporation Act.
The relaxation of restrictions on the placement of certain markings on envelopes will help businesses market their services by allowing them extra space for artwork such as advertising.
Business and consumer impacts: Canada Post estimates that the impact of the rate increases on the average Canadian household will be $5.25 annually. The impact on the average small business that uses stamps to pay postage will be approximately $60 annually.
The introduction of a differentiated pricing structure for basic domestic letters will allow consumers, small businesses and charities to save on postage costs by purchasing stamps in multiple formats. Currently, a reduction in letter mail rates is only possible for those mailing under the terms of a contract with the Corporation.
Small businesses and charities paying postage by way of postage meters will, for the first time, pay lower, commercial postage rates. Commercial rates are outside the scope of the regulations.
“One-for-One” Rule and small business lens: The “One-for-One” Rule does not apply, as the amendments do not impose administrative burden. As the amendments prescribe fees for service, the small business lens is not applicable. However, it is worthwhile noting that small businesses and charities that pay postage by way of a postage meter will benefit from new commercial rates that are lower than the regulated rates.
Domestic and international coordination and cooperation: These changes are 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 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 be dependent on appropriations from its shareholder, the Government of Canada, for its operations.
The postal industry is changing
Technological advances in the field of communications have had a profound effect on the postal industry in recent years. There has been a dramatic shift away from paper-based communications, both in Canada and abroad. As more consumers are pursuing online options for the sake of speed and convenience, governments and businesses are responding by sending mail digitally, primarily to reduce costs. Charities and not-for-profit organizations are doing the same by using the Internet, including social media, for soliciting donations and issuing receipts online. This widespread movement to digital communications, coupled with low economic growth, is causing a material decline in Canada Post’s core business.
The decline of letter mail volumes is not unique to Canada. The International Post Corporation reported in 2012 that among the 32 postal administrations that account for 90% of global mail, volumes declined by 15% from 2006 to 2011 while delivery points continued to grow. Postal administrations have responded to this situation in a variety of ways. However, many are seeing the need for a significant increase in postage rates. For example, in 2012, Britain’s Royal Mail increased the price of a first-class stamp for a standard letter by 30% and the price of a second-class stamp by 39%.
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, and 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 some one billion pieces and about 30% of that decline was in 2012 alone. This erosion is having a significant impact on the company’s profitability.
Canada Post’s standard letter mail rate has historically been amongst the lowest of comparable developed countries, despite Canada’s harsh climate, vast geography, and low population density. However, stamp prices have not kept up with the company’s operating costs. For many years, price increases for the basic stamp were kept well below inflation through a price cap, which linked increases in the price of the stamp to two-thirds the rate of inflation as measured by the Consumer Price Index. The price cap was repealed in 2009.
Since the end of 2007, the number of addresses to which Canada Post must deliver mail has increased by 845 000, but the total number of pieces of mail being delivered to each address has declined by 23.6%. Transportation and energy costs have risen above the rate of inflation. The result is that every year it costs more to deliver less mail.
Ongoing financial pressures
The enormity of the challenges facing Canada Post is evident in the company’s overall financial performance. In 2011, despite its efforts to generate revenue and reduce costs, the Canada Post Group of Companies reported its first financial loss after 16 consecutive years of profitability. In 2012, the Group recorded a before-tax profit of $127 million, while the Canada Post segment recorded a before-tax profit of $98 million on revenues of $5.9 billion. The profit is largely attributable to cost control efforts and to one-time non-cash accounting adjustments in the Canada Post segment related to changes in employee benefits contained in the new collective agreements signed with the Canadian Union of Postal Workers (CUPW) in December 2012. Without these adjustments, the Group of Companies would have incurred a loss before tax of $25 million and the Canada Post segment would have incurred a loss before tax of $54 million. For the first nine months of 2013, the Canada Post segment reported a loss from operations of $272 million, and there is no indication that under the current circumstances these losses will improve. Indeed, according to The Conference Board of Canada, in a report published in April 2013 entitled “The Future of Postal Service in Canada,” given current trends, Canada Post will incur annual operating losses of close to $1 billion by 2020 if no changes are made.
Canada Post has taken many steps in recent years to reduce its overall costs. In addition to the savings negotiated with the CUPW, which included lower starting wages for new employees, a new sick leave program, and changes to eligibility for an unreduced pension, new management and exempt employees now contribute to a defined contribution pension plan. Those under the legacy defined benefit pension plan are contributing to their pension at a higher rate, i.e. 50% beginning January 1 of this year. In addition, since 2008, direct and indirect head count have been reduced by 11% and 15%, respectively.
A number of other initiatives designed to increase efficiency and decrease operating costs are also underway. These include consolidating mail processing facilities to capitalize on the use of the high-speed processing equipment available in larger plants and aligning postal retail facilities with the demand for service in each area. Savings in information technology are being generated through a new IT delivery model, with Innovapost as the shared services provider for the Canada Post Group of Companies.
Changes are needed
A Five-point Action Plan intended to establish the foundation for a new postal system and return the Corporation to profitability was released on December 11, 2013. The realignment of stamp prices is just one component of Canada Post’s plan to reposition its business model to better serve the needs of Canadians in the 21st century. The company’s plan also involves standardizing household delivery with greater reliance on community mailboxes, the opening of more franchise postal outlets in stores across Canada, addressing the cost of labour and the realignment of the postal retail network to optimize coverage.
Details of the Plan can be found at Canada Post’s Web site: www.canadapost.ca/cpo/mc/aboutus/corporate/ap.jsf?LOCALE=en.
Issues
While transaction mail continues to be the largest source of revenue for Canada Post, this area of the business is in rapid decline. Between 2008 and 2012, the volume of letter mail sent by Canadians dropped by nearly 20%.
Canada Post is undertaking structural changes to the pricing of its regulated products as part of its multi-pronged effort to return to profitability. These changes would help ensure that the costs of maintaining postal service for Canadians continue to be borne by those using postal services, rather than through taxpayer-funded government support.
Objectives
Implementation of the amendments will help Canada Post continue to meet its universal service commitment to offer an accessible, affordable and cost-effective postal service for all Canadians and to meet its statutory mandate to operate on a self-sustaining financial basis.
Description
Through these amendments, Canada Post is increasing regulated postal rates and introducing a differentiated pricing structure for basic letter mail that will see more frequent users of the mail benefit from a lower rate. The new “tiered” structure recognizes Canada Post’s costs for processing various forms of transactions through its retail and processing networks.
On March 31, 2014, the price of an individual stamp for a domestic letter weighing 30 g or less will increase to $1.00. The rate for a stamp purchased in the form of a booklet, coil or pane will be $0.85. Rate increases will also be taking place for other domestic weight steps up to 500 g. The rates for the United States and international letter-post items along with domestic registered mail will also increase.
The following chart summarizes the rate changes for letter mail (other than letter mail weighing 30 g or less), effective March 31, 2014.
Letter Mail |
Weight |
2013 Rate |
2014 Rate |
|---|---|---|---|
1. Standard letter |
|
|
|
2. Other letter mail |
|
|
|
The following chart summarizes the rate changes for letter-post items to be delivered outside Canada, effective March 31, 2014.
| Letter-post |
Weight |
2013 Rate |
2014 Rate |
|---|---|---|---|
U.S.A. Letter-post |
|||
1. Standard mail |
|
|
|
2. Other letter-post |
|
|
|
International Letter-post |
|||
3. Standard mail |
|
|
|
4. Other letter-post |
|
|
|
The rate charged for domestic registered mail will increase to $9.00 (an increase of $0.50).
The amendments will also remove the specifications and rate for the “medium” letter product from the Regulations. This product, which was introduced in 2009 to benefit consumers who chose to use alternative-size envelopes to mail items in Canada, is being discontinued because of a lack of consumer demand.
Other minor amendments are being made for the purposes of clarification. For example, the definition “domestic basic letter rate” is being repealed as the term is no longer used in the Regulations, and references to “postage-paid-in-cash impressions” are being removed as these impressions are no longer an acceptable method of payment. In addition, the Regulations make a number of technical amendments, such as relaxing certain restrictions on the placement of addresses and other markings on an envelope given the enhanced capabilities of the new mail processing equipment installed under PT.
Regulatory and non-regulatory options considered
Canada Post has a multi-pronged plan to help it return to profitability. The realignment of stamp prices is just one component of that plan. Given that letter mail, international letter-post and domestic registered mail are regulated, any change to the rates must be made through a regulatory amendment.
Benefits and costs
The revenue generated from the proposed rates will contribute significantly towards the financial viability of Canada Post. This revenue will help reduce the Corporation’s operating losses and contribute to the company’s return to profitability.
Along with the proposed increases is a differentiated pricing structure for basic letter mail that provides a reduced rate to more frequent users of the mail. Over 98% of stamps sold at retail outlets in 2012 were in the form of booklets, coils or panes. However, currently one has to enter into an agreement with Canada Post for the purpose of mailing in bulk, preparing the mail in a way that facilitates processing or receiving additional services in order to obtain any reduction off the prescribed rate. With these regulations, a discount is available for the first time to anyone who purchases a small number of stamps in a booklet, coil or pane.
The impact of these rate increases across all products for the average Canadian household is estimated at $5.25 per year. The total increase in mailing costs for small businesses that use stamps to pay postage is estimated at approximately $60 per year.
Small businesses and consumers paying postage by way of postage meters will receive lower, commercial postage rates for the first time. Commercial rates are outside the scope of the Regulations.
Services critical for small- and medium-sized businesses are primarily direct marketing and parcels. The prices for these services are unregulated and are not impacted by these regulations.
The relaxation of restrictions on the placement of certain markings on envelopes will help businesses market their services by allowing them extra space for artwork such as advertising.
“One-for-One” Rule and small business lens
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.
However, it is worthwhile noting that small businesses that pay postage by way of a postage meter will now benefit from new commercial rates that are lower than the regulated rates.
Rationale
Given the current rate at which letter mail volumes are declining and the other financial pressures facing the company, Canada Post may no longer generate sufficient revenue to meet its service obligations in the future without major changes in its rate structure, productivity and networks. The rate increases will help ensure that the costs of running the postal service are paid by those who use it and not the Canadian taxpayer. The new rates will directly contribute to Canada Post’s financial integrity and consequently, its ability to make investments to maintain an accessible, affordable and efficient postal service for Canadians.
Consultation
Canada Post is committed to ensuring that an open and transparent consultation process takes place for all regulatory price increases. Stakeholders are consulted on an ongoing basis throughout the year and their input is taken into consideration when setting rates for the following year. Consultation continues during the regulatory process and, during this time, meetings are held with customers and industry stakeholders to gather feedback and input for proposed and future changes.
Given the magnitude of the challenges facing the Corporation, in the fall of 2012, Canada Post engaged The Conference Board of Canada to conduct an independent assessment of the future of postal service in Canada, and to consider potential paths forward. The research explored the attitudes and behaviour of Canada Post’s residential and business customers through a combination of interviews, focus groups and polling.
Following the release of the Conference Board’s report in April 2013, Canada Post launched a consultative initiative called “The Future of Canada Post” to help determine the kind of postal service Canadians feel they will need in the future. People were encouraged to post suggestions online through a portal on the company’s Web site, www.canadapost.ca. Representatives from Canada Post also visited 46 communities across Canada to obtain their views on all aspects of postal service in Canada, including rates, and discussions also took place with community leaders and elected representatives. During these consultations, Canadians said they would accept, within reason, higher stamp prices, given that most households mail letters infrequently.
The results of these consultations are outlined in the report The Future of Canada Post: Our Consultation with Canadians, which is available on Canada Post’s Web site at www.canadapost.ca/cpo/mc/assets/pdf/aboutus/c_en.pdf.
The announcement of the Five-point Action Plan on December 11, 2013, received considerable media attention and many Canadians took the opportunity to make their views on the various components known to the Corporation. Following the announcement, Canada Post representatives also communicated directly with a large number of stakeholders, including a diverse group of associations whose members will be impacted by the changes, major customers and elected representatives. The dialogue with stakeholders will continue to help the Corporation gain better insight into the changing postal needs of Canadians and increase their awareness and understanding of Canada Post’s challenges and its plans to transform the postal system for the future.
The Canada Post Corporation Act requires the publication of each regulatory proposal in the Canada Gazette. These regulations were prepublished in the Canada Gazette on December 21, 2013, commencing a 30-day period during which interested persons could make representations concerning the proposed regulations to the Minister of Transport.
During the 30-day period, five representations opposing the increases were received specifically in response to the prepublication in the Canada Gazette. Three representations were from national business/not-for-profit associations, one from a private company and one from an individual.
These representations, in addition to the numerous letters and emails that the Corporation has received with respect to pricing in response to its announcement on the Five-point Action Plan, have been taken into consideration. Because of the immediacy and magnitude of the Corporation’s financial challenges, no changes to the amount or timing of the rates are being made.
One change is, however, being made to the regulatory text following prepublication. To ensure that stamp collectors buying multiple stamps in the form of panes are eligible for the same $0.85 rate for domestic letters weighing 30 g or less as those purchasing stamps in the form of booklets or coils, a reference to “panes” is being added to the schedule to the Letter Mail Regulations.
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 these changes.
Contact
Georgette Mueller
Director
Regulatory Affairs
Canada Post Corporation
2701 Riverside Drive, Suite N0980C
Ottawa, Ontario
K1A 0B1
Telephone: 613-734-7576
Email: georgette.mueller@canadapost.ca
- Footnote a
R.S., c. C-10 - Footnote b
S.C. 2013, c. 10, s. 2 - Footnote c
R.S., c. C-10 - Footnote 1
SOR/88-430; SOR/90-801; SOR/2003-382