Changing market conditions hit Canada Post in Q2

Canada Post

Canada Post has blamed increasing competition in the e-commerce parcel delivery market for its growing losses this financial quarter.

 Operating profit across all segments fell to -C$167m (Q2, 2022, -C$64m) on revenues that dropped to C$2,340m. from C$2,465m

 The Canada Post segment’s growing losses was responsible for the majority of the -$167m loss made by the government-owned yet financially independent corporation. It made losses of -C$254m in the quarter, partially due to the ongoing drop in transaction mail volumes but also due to a squeeze on the parcels market. The Group’s contract logistics provider, SCI saw a profit of C$0, down from C$4m in the previous comparable quarter. Both SCI and sister courier company Purolator have long offset the mail operating segment’s losses but now contribute to the overall woes of the Group.

 Canada Post Group attributed a large part of its losses to an increasingly competitive parcels market. Though parcel volumes increased to 70m pieces as it won contracts with retailers to be their e-commerce delivery carrier of preference, the postal operator blamed rate shopping platforms for squeezing profitability. Smaller retailers are using these to choose the lowest cost carrier for final mile delivery. This has a positive impact on the competitive landscape from the consumer’s perspective but hits larger established players like Canada Post.

 Another competitive landscape element blamed by the postal operator is the use of low-cost freelance delivery drivers by its competitors. Major private logistics players like Amazon use non-unionised, freelance drivers to cut the costs of delivery to their clients. As with many postal operators globally, Canada Post’s workforce are unionised and contracted employees with collectively bargained terms and conditions that cost more than freelancers. Such staff costs increase the overall costs per piece in its parcel delivery network and reduce its competitiveness.

 In the face of drops in overall market share, Canada Post is undergoing short term pain in the hope to achieve long term gain. For the short to medium term it is building out its parcel handling and sorting infrastructure with new and refurbished facilities. In the long term it has asked the Canadian Government to approve a strategic plan for it to raise market share in the parcels market. Whether this will help the postal operator to manage costs relative to those of its dedicated parcel operator competitors who have the advantage of cheaper labour remains to be seen.

Source: Canada Post

Author: Richard Shrubb