The blue Clearly Contacts boxes stand out on the long conveyor belts crisscrossing the cavernous interior of Canada Post’s new 700,000 square foot processing plant in Richmond.
The blue boxes blip by every few seconds, interspersed with other small parcels. Inside the boxes are eyeglasses and contacts customers have ordered online from the Vancouver-based e-commerce company.
It’s an area of business Canada Post is banking on as it continues its plan to restructure in the wake of sharply declining letter mail. Since 2006, letter mail has dropped by more than a billion pieces.
In 2013, the Crown corporation reported losses in every quarter except the last, when the proceeds from the sale of its downtown Vancouver facility on Georgia Street put the company briefly into the black.
The company announced a controversial restructuring plan in December 2013, which included phasing out home delivery, increasing the price of stamps, focusing on growing parcel delivery and cutting employees, mostly through attrition.
In the first quarter of 2014, the losses continued. But the corporation finally managed to post a modest profit in the second quarter, thanks to the hike in stamp prices, growth in parcels and favourable returns on its pension investments.
While Canadians shop online in fewer numbers than Americans and Europeans, e-commerce is growing rapidly in this country, said Rod Hart, general manager of parcel delivery for Canada Post.
“As it relates to our parcel and package business, we’re currently seeing 17% growth in e-commerce,” Rob Hart, Canada Post’s general manager of domestic parcel delivery, told Business in Vancouver.
The company is working directly with traditional retailers like Walmart, Hudson’s Bay Company and Best Buy, who are also looking to grow their e-commerce businesses. For instance, Best Buy is experimenting with an “unlimited aisles” concept, offering household items that go beyond its traditional electronics offerings on its online store.
“We’ve been working very, very closely with retailers,” Hart said. “How do we make your customers’ experience even better? We know the shipping experience is such an important part of the buying experience for someone buying online.”
“One of the growing trends over the past 12 months is how do those retailers use stores in different parts of the country to fulfill their orders. We’ve been working closely with them to understand what does that mean that your point of sales system has to somehow generate parcel labels?”
The new facility is located on Sea Island, near the Vancouver International Airport. Since many deliveries arrive by air, the location will help Canada Post speed up deliveries and process more mail and parcels, Hart said.
The plant is more fully automated than previous facilities, and has been designed to handle more parcels than other sorting plants that were built in the era when letter delivery made up the bulk of Canada Post’s business.
Competition
Canada Post will face growing competition from existing deliverers like FedEx, DHL and UPS, as well as Amazon and Google, who are now looking at creating their own delivery services, said Marc-David Seidel, a professor at the University of British Columbia’s Sauder School of Business.
But the Crown corporation does have a shot at making e-commerce a significant part of their business, because of their existing infrastructure that allows them to be able to delivery everywhere in Canada, Seidel said.
It’s also possible that an e-commerce giant like Amazon could partner with Canada Post in the future to deliver in Canada.
The fact that Canada is behind the United States in adoption of online shopping is actually a plus for Canada Post: now is a good time for the company to be focusing on growing deliveries as e-commerce in Canada gets established.
Seidel noted that in Canada, there are currently two market gaps in e-commerce: not a lot of companies offer same-day delivery for items ordered online, and Canada also lacks the online shopping comparison sites that are common in the U.S.
Those comparison services helped e-commerce grow in the U.S., Seidel said.
“A lot of time the [Canadian] sites will turn up U.S. companies selling [the item], which have all the border issues,” he said. “There still room for an aggregator to come in here and help people navigate that market.”
As a trusted national company, Canada Post could play that role.
“If Canada Post could do some sort of really good market aggregation for the best price available, and then you have some sort of guarantee that Canada Post has verified that it’s a legitimate retailer,” Seidel said. “They could really step into that market mediation role and then handle delivery as well.”
Union concerns
Canada Post has needlessly accelerated the decline of letter mail by raising stamp prices, said John Bail, Pacific director of the Canadian Union of Postal Workers.
The union supports more parcel delivery, Bail said, but the transition to the new facility, which started limited operations in February, has not been without problems.
While no employees were laid off, more workers have been required to work the night shift at the new facility, the busiest time for delivery processing. He is also not convinced that more automation — which requires fewer workers — results in faster mail processing.
The new facility employs around 1,000 workers, with 250-300 employees required to run the plant. That number will increase, however, during busy times like Black Friday and Christmas.
The union fears that as Canada Post grows its e-commerce delivery business, the corporation will hire outside of the union or contract out, Bail said.
