A flexible delivery model to serve Canada’s evolving needs
Throughout its long history, Canada Post has constantly evolved to keep pace with the changing needs and expectations of Canadians. Over the last two decades, our country has transitioned from an era of peak mail in 2006 to one defined by digital communication. As Canadians began receiving less mail and more parcels from online shopping, we pivoted to serve their changing mailing habits.
This early-mover status in the parcel market made Canada Post the country’s leading ecommerce delivery company, at one point delivering two out of every three online purchases. By 2019, the Parcels business represented the largest share of Canada Post’s revenue. It was during that same year that we initiated a comprehensive transformation plan, designed for ecommerce growth.
The shipping and mailing needs of Canadians have changed
In just the last few years, the shipping and mailing needs of Canadians have undergone a generational shift – at a pace not seen before in our history. The COVID‑19 pandemic drove a sudden and sustained ecommerce boom. As the country emerged from the pandemic, changes in the competitive delivery landscape rapidly accelerated.
Today, the parcel delivery market faces intense and growing competition from global corporations and nimble delivery providers with low-cost labour structures. In this post-pandemic competitive climate, it’s about more than just getting your item – it’s about speed, price, convenience and so much more. It’s a fight for every parcel, and Canada Post’s legacy operating model and collective agreements – built for a bygone era of letter mail – are pushing it to the sidelines.
An outdated delivery model
Canada Post’s outdated delivery model faces existential challenges. The current model is rigid and inefficient. It’s hindering the company’s ability to compete, grow its business and be financially self-sustainable. Resistance to change by successive governments and Canada Post’s largest union has led the company to the verge of financial insolvency.
Delivery routes are fixed and based on a set number of addresses to visit, rather than volume delivered, which limits Canada Post’s ability to respond to changing customer demands. The current system doesn’t efficiently account for daily fluctuations in volumes or easily allow the company to balance out the workload among delivery employees during scheduled hours. This results in inefficiencies, such as unproductive paid time for some employees who have less volume to deliver and unnecessary overtime for others who have larger volumes. Under this model, the company incurs significant overtime costs to provide evening and weekend delivery services. It’s unaffordable and unsustainable.
To capture changes in addresses, volumes and workload on delivery routes, Canada Post has a process to restructure routes in accordance with its collective agreements with the Canadian Union of Postal Workers (CUPW). However, restructuring a delivery route often takes several months to complete, and it can take anywhere from three to five years before that same route is restructured again. Also, the restructure process relies on volumes from the previous four years, rather than forecasting projected volumes based on the rapidly fluctuating marketplace. This route restructure process makes it ineffective in the fast-paced parcel delivery market, where volumes can change significantly on a weekly, monthly and even daily basis. This is compared to our competitors, who use sophisticated technology to design and adjust routes daily, maximizing their efficiency and speed while minimizing cost.
We continue to work with our bargaining agents, particularly CUPW, to achieve greater flexibility in the way we deliver. This is essential to provide cost-effective, seven-day-a-week services that meet the ecommerce needs of Canadians – and to help the Corporation return to financial self-sustainability.
Flexibility is required in collective agreements
Canada Post’s collective agreements with CUPW contain requirements and restrictions that were added decades ago when the postal service had a large and steady stream of mail to deliver. While mail volumes are now a fraction of what they were, it has been extremely challenging to negotiate measured changes to the collective agreements, despite multiple attempts to do so. Today, the agreements significantly limit the postal service’s ability to meet the dynamic needs of Canadians and Canadian businesses – including offering affordable evening and weekend parcel delivery.
The Corporation provides parcel delivery services from Monday to Friday (except in limited situations), whereas many competitors deliver seven days a week. Canada Post is also an outlier on weekend delivery compared to other large postal services around the world. Currently, we cannot offer customers affordable weekend parcel delivery, causing us to also lose some weekday business from customers, especially on Fridays. Without a viable weekend solution, we cannot practically compete on weekends and will continue to lose customers during the week, further eroding our share of the delivery market.
The current delivery and staffing model in the agreements is inflexible and makes it difficult to adapt to changing customer demands. It hinders the company’s ability to schedule part-time delivery employees based on fluctuations in volumes. It’s critical that we start to realign the post office to the realities of today’s marketplace. However, Canada Post does not aspire to the contract-labour model used by many of the new, low-cost privately owned delivery companies. The Corporation remains committed to providing good jobs with benefits, and fair and safe employment for Canadians across the country.
Changing market dynamics challenge Canada Post’s future
It’s clear that changes are needed in how we deliver. The markets in which Canada Post operates have experienced fundamental, long-term and irreversible changes. The seismic shift from mail to parcels means that letter mail volumes alone can no longer sustain the postal network. At the same time, the growing competitive pressures in the delivery market – combined with Canada Post’s uncompetitive and inflexible labour costs – mean that our Parcels business cannot offset losses from providing essential services like letter mail.
These challenges have accelerated in recent years and show no signs of slowing down. With an outdated delivery and staffing model, Canada Post continues to struggle competitively and financially. These issues have contributed to losses totalling more than $3.8 billion before tax since 2018, and they are threatening the Corporation’s ability to meet its obligations to Canadians.
Canada Post’s ability to invest in the future of the postal service and return to financial self-sustainability hinges on substantial modifications to its collective agreements. We need flexibility to fight for our future.
A parcel market share in rapid decline
Due to restrictions in its operating model and collective agreements, Canada Post cannot keep pace with the competition. As a result, the Corporation’s share of parcel delivery has plummeted from nearly two thirds of the market before the pandemic to less than a quarter today. It’s down from 62 per cent in 2019 to just 24 per cent in 2024 prior to the labour disruption.
With parcels making up approximately half of Canada Post’s revenue – and helping sustain much of its national operations – it’s critical that the postal service remains competitive in the parcel delivery market.
Heightened customer expectations
In today’s ecommerce market, Canadians have higher expectations for service performance, delivery speed and flexible delivery options, including weekend, same-day and next-day delivery.
Established competitors and new entrants have both adjusted to the higher demand for fast, reliable deliveries, seven days a week. They’ve capitalized on the trend, especially in urban centres, capturing weekday and weekend market share from Canada Post. Already an important segment of overall deliveries in Canada, weekend delivery is expected to continue growing as seven-day-a-week delivery becomes the norm for most Canadians.
The threat to Canada Post’s business model
Regardless of their size, ecommerce merchants select delivery providers based on price, delivery speed, weekend delivery and reliable on-time service. These changing expectations have resulted in several market shifts that are threatening Canada Post’s business model:
- Increasing demand for weekend delivery – Merchants and consumers are increasingly looking to have parcels delivered on weekends. Canada Post’s current inability to offer affordable weekend parcel delivery leaves it largely shut out from this critical segment of the marketplace.
- Localized delivery approaches – Merchants store inventory closer to customers to reduce shipping times and costs. This challenges the economics of Canada Post’s national delivery model, as regional, low-cost delivery companies offer highly competitive pricing.
- Price shopping – Merchants establish shipping contracts with multiple carriers to be in a position to select the best price for each parcel shipped. Carriers offering competitive pricing as well as weekend and evening delivery have a significant advantage on automated price-shopping platforms.
- Rise of third-party platforms – Third-party platforms like ecommerce marketplaces and shipping systems grant merchants access to heavily discounted and competitive shipping rates from multiple carriers, adding to the competitive pressures on Canada Post.
- Dynamic pricing – Competitors are investing in advanced data and technology to better understand market dynamics, network capacity and cost. This capability gives them the agility to offer optimal pricing for every parcel to maximize profitability and market share.
Importantly, our competitors do not share Canada Post’s universal service obligation to serve all 17.6 million addresses in the country. They can make strategic business decisions about where and how to operate, based on dollars and cents. For example, they can focus on delivering exclusively in lucrative, high-density urban areas in Canada’s largest cities. They can choose not to operate in areas that aren’t profitable. Canada Post, on the other hand, must serve all business and residential addresses across the country.
Changes are needed to modernize Canada Post
Significant changes are urgently needed to modernize the postal system and address Canada Post’s growing challenges. The Corporation cannot rely on its current operating model and collective agreement rules that were designed for a bygone, paper-based era.
To continue to fulfill its important service mandate for Canadians and meet their changing needs, the postal service requires greater flexibility to:
- Compete in today’s growing, highly competitive parcel delivery business.
- Base its delivery routes on the parcel volumes that must be delivered each day.
- Offer weekend, evening and next-day delivery service at affordable rates.
- Schedule employees based on fluctuations in volumes.
- Design the network to be competitive locally and optimize delivery density for all products, seven days a week.
- Tailor letter mail delivery to the current and future expectations of Canadians.
- Leverage and adjust its workforce to improve productivity and match operational needs.
- Invest in the company, its network and people, and continuously improve service.
To sustain Canada Post as a service provider – and continue to serve the evolving needs of communities and businesses – the company must fund its universal service obligation through its Parcels business. Doing so requires significant changes to its delivery model and collective agreements.
More information on Canada Post’s challenges and its proposed changes can be found in the company’s submission to the Industrial Inquiry Commission. The Commission was established by the Minister of Labour to review the collective bargaining dispute between Canada Post and CUPW, as well as the Corporation’s broader financial situation and competitiveness.