Vol. 147, No. 51 — December 21, 2013

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: Canada Post is proposing to introduce a new tiered pricing structure for letters mailed within Canada. The new pricing structure would benefit those who use the mail most and would better reflect the cost of serving various customer segments.

Beginning on March 31, 2014, consumers and small businesses that buy stamps in booklets and coils, which represents 98% of sales in this category, will benefit from reduced rates. The price (per stamp) would be $0.85 for letters weighing up to 30 g mailed within Canada. Small and medium-sized businesses that use postage meters would 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 would 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 would qualify for the reduced rate of $0.85 if purchased in a booklet or coil. For most customers, this tiered-pricing approach would represent approximately 15 to 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 would also increase, and would typically fall in line with the newly established price levels. However, unlike letter mail weighing less than 30 g mailed within Canada, the pricing for these products would not include a uniquely differentiated single stamp price.

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 of conducting its operations. The costs associated with providing postal service increase every year. Canada Post must therefore raise the rates charged for postal services in order to cover the costs of its operations and badly needed capital investments.

These proposed structural changes to the pricing of its regulated products are part of a multipronged 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.

Description: The proposed amendments would establish the rates of postage for domestic letter mail items, U.S. and international letter-post, and domestic registered mail, effective March 31, 2014.

The Regulations Amending the Letter Mail Regulations would also remove the “medium” letter mail category from the Letter Mail 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 single stamp for letter mail weighing 30 g or less would increase to $1.00 on March 31, 2014, while the price for a stamp purchased in a booklet or coil would be $0.85. The rate for domestic registered mail would also increase.

Benefits: The differentiated pricing structure for domestic letter mail weighing up to 30 g would allow those buying stamps in booklets or coils 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 or coils.

The proposed rate changes would help Canada Post to continue to fund its operations from its revenues, without needing to rely on taxpayer funding. The 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 could 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 proposed rate increases on the average Canadian household would be less than $5 annually. The impact on the average small business that uses stamps to pay postage would be approximately $55 annually, based on the average annual spending of $155.

The introduction of a differentiated pricing structure for basic domestic letters would allow consumers and small businesses to save on postage costs by purchasing stamps in booklets and coils. Currently, a reduction in letter mail rates is only possible for customers mailing under the terms of a contract with the Corporation.

Small businesses paying postage by way of postage meters would, 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: As the proposed amendments prescribe fees for services and do not impose an administrative burden on any business, the small business lens is not applicable. Neither does the “One-for-One” Rule apply, as the amendments do not add regulatory requirements. However, it is worthwhile noting that small businesses that pay postage by way of a postage meter would benefit from new commercial rates that are lower than the regulated rates.

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 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. 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, this 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 decline 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 limited 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. Moreover, there is no indication that under the current circumstances these losses will be minimized. 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.

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 will contribute to their pension at a higher rate, i.e. 50% beginning in 2014. In addition, since 2008, direct and indirect head counts have been reduced by 11% and 15%, respectively.

In terms of savings from operations, Canada Post is continuing to implement Postal Transformation (PT), a multi-year, $2 billion infrastructure renewal program that is expected to generate more than $250 million in annual long-run savings once fully implemented by 2017. Under PT, letter-processing equipment is being modernized, manual-sorting processes are being automated, a portion of the delivery workforce is being equipped with vehicles and mail-processing plants are being replaced or improved.

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

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, which also involves standardizing household delivery with greater reliance on community mailboxes, realigning the postal retail network to optimize coverage, and optimizing the operating network and the speed of mail to match market need, is designed to help Canada Post return to profitability without becoming a burden on taxpayers.

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 proposing 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 met through taxpayer-funded government support.

Objectives

Implementation of the proposed amendments would help Canada Post continue to meet its universal service commitment of offering 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 regulatory amendments, Canada Post is proposing to increase regulated postal rates and to introduce a differentiated pricing structure for basic letter mail that would allow more frequent users of the mail to 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.

Under the proposal, the price of an individual stamp for a domestic letter weighing 30 g or less would increase to $1.00. The rate for a stamp purchased in a booklet or in coil form would be $0.85. Rate increases are also being proposed for other domestic weight increments and letter-post items being mailed to the United States and internationally. The rate for domestic registered mail would also increase.

The following chart summarizes the rate changes for letter mail (other than letter mail weighing 30 g or less) contained in the current regulatory proposals, effective March 31, 2014.

Letter Mail

Weight

2013 Rate

2014 Proposed Rate

1. Standard letter mail

Over 30 g up to 50 g

$1.10

$1.20

2. Other letter mail

Up to 100 g

$1.34

$1.80

Over 100 g up to 200 g

$2.20

$2.95

Over 200 g up to 300 g

$3.05

$4.10

Over 300 g up to 400 g

$3.50

$4.70

Over 400 g up to 500 g

$3.75

$5.05

The following chart summarizes the rate changes being proposed for letter-post items to be delivered outside Canada, effective March 31, 2014.

Letter-post

Weight

2013 Rate

2014 Proposed Rate

U.S.A. Letter-post

1. Standard mail

Up to 30 g

$1.10

$1.20

Over 30 g up to 50 g

$1.34

$1.80

2. Other letter-post

Up to 100 g

$2.20

$2.95

Over 100 g up to 200 g

$3.80

$5.15

Over 200 g up to 500 g

$7.60

$10.30

International Letter-post

3. Standard mail

Up to 30 g

$1.85

$2.50

Over 30 g up to 50 g

$2.68

$3.60

4. Other letter-post

Up to 100 g

$4.36

$5.90

Over 100 g up to 200 g

$7.60

$10.30

Over 200 g up to 500 g

$15.20

$20.60

The rate charged for domestic registered mail would increase to $9.00 (an increase of $0.50).

The proposed amendments would also remove the specifications and rate for the “medium” letter product from the Letter Mail 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 Letter Mail 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, there are 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 the PT program.

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 would contribute significantly towards the financial viability of Canada Post. This revenue would 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 or coils. 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 discount off the prescribed rate. With the approval of the proposed Letter Mail Regulations, a discount will be available for the first time to anyone who purchases a small number of stamps in a booklet or coil.

The impact of these proposed rate increases across all products for the average Canadian household is estimated at less than $5 per year. The total increase in mailing costs for small businesses that use stamps to pay postage is estimated at $55 per year, based on the average annual spending of $155.

Small businesses and consumers paying postage by way of postage meters would receive lower, commercial postage rates for the first time. Commercial rates are outside the scope of the regulations.

The relaxation of restrictions on the placement of certain markings on envelopes could help businesses market their services by allowing them extra space for artwork such as advertising.

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

As the proposed amendments prescribe fees for service and do not impose an administrative burden on any business, the small business lens is not applicable. The “One-for-One” Rule also does not apply, as the amendments do not add regulatory requirements. However, it is worthwhile noting that small businesses that pay postage by way of a postage meter would 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 proposed rate increases would 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 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 for Canadians.

Consultation

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 Corporation’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 consultative efforts are being taken into account in determining the changes needed to ensure that Canada’s postal service meets the needs of Canadians without becoming a burden on taxpayers.

In addition to these consultations, 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.

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 within 30 days after the prepublication of the proposed regulations. The representations are taken into consideration in the preparation of the final regulatory proposals.

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

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

Description

Column 2

Rate

1.

Letter mail not more than 245 mm in length, 156 mm in width or 5 mm in thickness

 

(1) 30 g or less

 
  • (a) letter mail item

$1.00

  • (b) letter mail item by booklet or coil

$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

[51-1-o]