The pandemic undercut Canada Post's business model — and showed it a new one

The global pandemic posed major challenges to Canada Post — and pointed the way to a new business model for the Crown corporation — as limits on in-person shopping drove consumers online.

Canada Post spokesman Jon Hamilton said that while the pandemic-fuelled explosion in home parcel deliveries was not enough to offset revenue losses caused by a drop in regular mail and extra operational safety costs, it did give the corporation a glimpse of its likely future.

"The growth in parcels is giving the postal service its north star," he said.

Hamilton said the surge in package volumes began early with the onset of the pandemic, when people were stocking up on essential items and had limited access to stores. For many, online shopping became a habit that continued through the year, even as lockdowns lifted.

Since the pandemic began, Hamilton said, Canadians have been shopping online more frequently and for a broader range of goods — including big-ticket items like barbecues, televisions and summer patio sets.

While the trend toward online shopping was already in motion when COVID-19 hit, the pandemic delivered a "steroid shot" that put shipping volumes three years ahead of Canada Post's forecasts, Hamilton said. Small and medium-sized businesses have adapted their sales and marketing strategies to serve a "deliver it to me" society, he added.

Hamilton said Canada Post has an advantage over many of its competitors because it already delivers to 16.5 million addresses across Canada, including northern, rural and remote locations. He said he expects the competition to grow in number as Canadians continue to shift their shopping habits.

"What we've been seeing through COVID is the projections have leapfrogged, and now you're going to see as many people get into the game as possible," he said.

Despite the surge in parcel deliveries, the pandemic brought with it new challenges for Canada Post. The volume of traditional mail, such as bills and marketing materials, has declined as companies have scaled back promotional campaigns.

The corporation also has incurred significant costs associated with ensuring security and safety for staff and customers, such as providing protective equipment and reconfiguring work spaces.

Loss of $265M in third quarter

Canada Post reported a loss of $265 million before taxes in the third quarter, and $709 million in total for the first three quarters.

Sherena Hussain, an instructor at York University's Schulich School of Business, said it's hard to say whether the business opportunities afforded by the pandemic will be a boon to Canada Post over the longer term.

Its field of competitors — which range from global transport firms and retail giants like Amazon to small-scale bike courier outfits — is growing, she said, and most have lower overhead and labour costs.

"We're seeing a lot of different types of players emerge. Some of them are tied more to the retailers versus just being an upshoot that has a very nimble operation to get packages to the customer sooner," she said.

While the volume of traditional mail is declining, Hussain said, many Canadians still have a "sentimental" connection to those deliveries — demonstrated by the national uproar over the corporation's plan to replace door-to-door delivery with community mailboxes in some communities five years ago.

"If we see parcels becoming a staple moving forward, the question of course is, will that be the saviour for Canada Post?" she said.

"Do they make a lot of hard decisions in order to remain competitive but also keep their self-funding model so they're at least able to remain, if not profitable, break-even while still carrying that sentimental attachment people have to the traditional model that Canada Post is known for?"

Home delivery comes full circle

Business adviser and analyst Jenifer Bartman said it all looks like retail moving forward to the past. Once, Canadians could have everything from milk to department store catalogue purchases delivered to their homes. Now, they have groceries, meal kits and boutique shop items dropped on their doorsteps.

Bartman said the challenge for Canada Post is to ensure it can compete efficiently on logistics and cost at a time when technology and tracking systems are advancing fast. 

"Canada Post is going to have to pay good attention to that to ensure the offering they have on the parcel delivery side is competitive with what is otherwise available," she said.

Bartman also predicted the appeal of home delivery might subside over time as more people are vaccinated and life begins to get back to normal.

"I think people are going to want to go back to the mall. They're going to want to do some of these normal things that we haven't been able to do for a little while," she said.