For better and for worse: The complicated case of e-commerce

Since joining Canada Post in 2009, communications strategy manager Jon Hamilton has observed the steady decline of letter mail. Around 2006, Hamilton says that the, “…Internet started to take hold. People started to trust it to do the types of things they do through the mail…paying bills, getting statements, things like that.”

The shift took a toll on Canada Post’s nationwide operations in 2011. Although it managed to remain solvent for over a decade, a result of price hikes and organizational changes, 2011 saw before tax losses totaling $253 million. This is consistent with the negative impact that virtual communication is having on Canada Post’s sole access to the collection and distribution of letter mail. While this monopoly was seen historically as an advantage, the Crown corporation’s control over the universal service obligation (USO), or the duty to serve every address in the nation, has become expensive and unrealistic.

In response, Canada Post commissioned an analytical report from the Conference Board of Canada in 2013. According to the assessment, the corporation delivered one billion fewer letters in 2012 than it did in 2006.

Booming e-commerce

Despite the doom and gloom of the Conference Board of Canada’s evaluation, a silver lining appeared in its forecasts for the future. While the Internet was driving down postal rates, it was also enabling an e-commerce boom. Again and again, parcel figures trumped the trend.

This silver lining reflects the growing popularity of online retailing in Canada. Studies conducted by technology and market analysis experts at Forrester Research found that between 2010 and 2013, digital sales rose from $15 billion to $20 billion. It is expected that Canadian e-commerce levels will reach nearly $40 billion by 2019, using a 12 per cent compounded annual growth rate over the next four years.

Considering surges in the number of goods ordered online, Canada Post is becoming a parcel delivery company with a small letter mail service as opposed to a letter mail corporation with a marginal package delivery service. Canada Post CEO Deepak Chopra supports this transition. In his 2012 president’s message, Chopra stated that the corporation would be remodeled over the next eight years with a specific focus on e-commerce, making Canada Post “…the network of the future.”

“The workers are vulnerable, especially when there are cheaper options. We want to keep protections so that these workers can count on steady income and hours. But there are contracting risks, especially for parcels.” -Lynne Pajot

Chopra’s strategies follow up on Canada Post’s ownership of Purolator, Canada’s biggest courier company. In 2013, the Crown corporation’s control over 91 per cent of Purolator brought about $66 million in pretax earnings. In 2014, this figure went up to $80 million.

Notwithstanding the financial considerations, Chopra’s decision to morph Canada Post into an e-commerce enterprise is yet to be nationally accepted, both inside and outside of the corporation.

Workforce threats

For Canadian Union of Postal Workers (CUPW) research specialist Lynne Pajot, the growth of Canada Post’s e-commerce division signifies a potential threat to the organization’s members. Though letter mail is prohibited from being contracted outside of the union, packages are unregulated, which offers up a prospective platform for outsourced employees who may provide services at a lower rate.

“The workers are vulnerable, especially when there are cheaper options. We want to keep protections so that these workers can count on steady income and hours. But there are contracting risks, especially for parcels,” says Pajot.

On the software side, providers are also concerned. In spite of Canada Post’s provision of delivery services through partnerships with new e-commerce companies like Shopify and Magento, industry specialists are still wary of Canada’s online retail climate.

After being approached by Canada Post in 2013, Thinkwrap Commerce founder Peter Lui-Hing began linking his e-commerce business with the Crown corporation’s mailing system. He recognizes the benefits of a working relationship with Canada Post that accommodates the shipment of retail goods for clients like Le Chateau, Black’s Photography and Cineplex Entertainment. Even so, Lui-Hing is still critical of digital sales in Canada.

“You would imagine that, for various reasons, like the fact that we have better average Internet access for most of our citizens…that we would be much higher on the adoption curve for e-commerce, but we’re not,” says Lui-Hing.

Indeed, although approximately 85 per cent of Canadians have access to the Internet, domestic businesses have been noticeably slow to launch retail websites. This becomes clear when compared with U.S. rates. In 2014, U.S. web commerce shares hit 9 per cent, whereas online retail spending in Canada is only expected to reach 10 per cent by 2019.

The Standing Committee on Industry, Science and Technology began assessing why Canadians have been slow to embrace digital shopping in its 2012 report E-Commerce in Canada: Pursuing the Promise. It revealed that small and medium sized enterprises avoided online sales for fear of customer security breaches. With reason, in 2014 alone, over one third of Canadian businesses experienced a major data breach.

At the other end of the Canadian digital retail spectrum are large-scale companies making substantial inroads online. Canadian Tire exemplifies this; in 2013, it added 10,000 products to its online store. In the following year, president Mike Medline announced that between 2015 and 2017, Canadian Tire, a Canada Post client, will spend $575 million per year on internal digital technologies.

At Ottawa’s bustling Canada Post processing plant in Nepean, Ontario, postal worker Dianne Tyrer is at the heart of the ebb and flow that characterizes the e-commerce sector. She struggles daily with the progressive replacement of letter mail with parcels, a swift and comprehensive change unlike others experienced throughout her 25-year-long mail carrier career.

“The letter carriers are doing a lot more work than they used to do. Now they’re doing their complete walk and a new job all over again, delivering parcels in the same day. It’s all on the letter carrier,” says Tyrer.

A day in the life of postal worker Dianne Tyrer

In spite of the concerns of Canada Post employees like Tyrer, the corporation is continuing its plan to expand its e-commerce sector. Emphasis on growth was so great that in September 2014, the cutting-edge Pacific Processing Centre was opened in Richmond, a Vancouver suburb. On an average day, the sprawling $200 million site sorts about 10,000 parcels.

“Fed Ex and UPS and other companies are already in this market. They have a huge presence in the e-commerce industry…whether Canada Post can get into that market when they’re competing against behemoths, that’s an open question.” -James Bowen

When discussed at the upper echelons of Canada Post, the positives of e-commerce expansion consistently outweigh the negatives. Canada Post director of strategy and e-commerce market development Marc Smith is unreservedly committed to developing services that improve online sales.

“We are making our infrastructure more efficient…allowing Canadian retailers to deploy services and e-commerce strategies that win,” says Smith.

Stiff competition

 

These measures may not bring about winning results for all parties however. University of Ottawa Telfer School of Management professor and e-commerce expert James Bowen is mindful of ample competition crowding the saturated field. With giants such as Fed Ex, UPS and DHL on the scene, the parcel delivery industry is cut throat and home to major international competitors.

“Fed Ex and UPS and other companies are already in this market. They have a huge presence in the e-commerce industry…whether Canada Post can get into that market when they’re competing against behemoths, that’s an open question,” says Bowen.

Bowen’s apprehension is warranted. E-commerce success is largely contingent upon the state of the world’s top parcel delivery companies, many of which are being dwarfed by Amazon’s drive to dominate the e-commerce sphere. Currently under development is Amazon’s mission to deliver packages via unmanned drones, which, if ever implemented, could bring about significant cuts in labour and shipment times. Moreover, even though Amazon uses Canada Post’s services to deliver numerous products, the Seattle-based e-retailer also partners with courier companies like CEVA Logistics and Dynamex. Amazon often measures Canada Post’s pricing and performance relative to other carriers.

For Sprott School of Business professor Ian Lee, Canada Post’s advantage lies in its capacity to reach every corner in Canada. “Because of the USO, Canada Post goes to many more addresses…courier companies won’t go to every address,” says Lee.

In spite of this selling point, stiff competition from colossal rivals adds to the shadow that looms large over the complex retail sector that Canada Post aims to serve. This precarious situation is intensified by the dissatisfaction of Canada Post clients and CUPW members. At the same time, e-commerce is the Crown corporation’s most promising source of revenue, giving it all the more reason to home in on online shopping. Considering the range of incentives and disincentives pulling at Canada Post’s digital sales division, its e-commerce sector is both a blessing and a curse; offering up hope and confidence along with contention and concern.