If you live in Canada and read the news recently, you probably know that Canada Post is losing a lot of money. While there’s no question that Canada Post needs some serious restructuring, I am disappointed that there isn’t any discussion about increasing shipment volume by providing small businesses additional incentives.
Whenever Canada Post raises its prices, it’s essentially trading long-term shipment volume for a temporary increase in revenue. They are forcing current customers with no alternatives to pay more now, meanwhile discouraging entrepreneurs from doing business online. This is the wrong approach when your main problem is insufficient volume and when E-Commerce is one of the fastest growing industries in the world. Canada’s E-Commerce is already lagging and people should really ask the question why? And I am telling you it’s not because Canadians are less entrepreneurial. Furthermore decisions on pricing don’t just affect the postal service, it matters to all levels of government. Because when you stifle businesses and their ability to compete on a global market it impacts economic growth, which directly translates to less job creation and tax revenues. This is not an ethical or political argument but an economic one.
Extent of the issue
Canada Post has one of the highest shipping prices in the world. It is more expensive for Canadian businesses to ship parcels to U.S customers than for U.S businesses to ship parcels to Canadian customers. In fact it’s also cheaper to ship from the United States to Canada than it is to ship within Canada. Consequently it’s incredibly difficult for Canadian businesses to make a decent profit selling any item under $40, unless it’s so small that it can pass as lettermail.
For more detail on how overpriced Canada’s shipping rates are compared to other countries, I found a rather interesting website called. What’s Wrong with Canada Post
Canada’s E-Commerce is Lagging
Let’s look at some numbers.
- U.S. E-commerce grew 13% in Q3 2013 (Source: comScore)
- China’s online spending grows 70% between 2009-2013 (source: Bain.com)
- Canadian’s spent $18.9 billion in 2012, up 24% compared 2010 (sources: Statistics Canada)
- Canada Post’s parcel revenue grew by a measly 6.1% in 2012 (source: Canada Post Annual Report)
It’s clear that shoppers globally, including Canadians, are increasingly spending more online. Now the question is whether or not Canadian businesses are participating in this global E-Commerce growth like everyone else is. If not, do shipping prices have anything to do with it?
Between 2009 to 2012, share of online purchases relative to total retail purchases only increased 0.4% percent in Canada. Though shipping cost is not the only factor and determinate for this lag; I can’t help but feel that shipping cost is an very important factor.
I recognize that we cannot make any definite conclusions by looking at these numbers alone. And if I had a Bloomberg terminal beside me and more time; I could probably do a better analysis of the numbers. Regardless, I think just glancing at these numbers are sufficient to say that increasing volume by providing small business incentives should be on the table for evaluation.
To be clear, I am not opposed to price hikes that attempt to bring revenue closer to the true cost of service when it won’t significantly impact the volume of shipments. My concern pertains specifically to the current pitiful 5% discount offered by the Venture One program for small businesses. Even after the discount, shipping cost remains highly uncompetitive when compared to U.S retail shipping prices. What Canada Post needs to do in addition to its restructuring plan is to provide additional incentives for business owners to take their businesses online. This can be done by either increasing the discount offered by the current Venture One program, or introducing another program that provides greater discounts at different volume tiers. Or at the very least, I think the government should refrain from taxing business related shipments.
In summary, it’s clear that Canada Post is facing problems and E-Commerce is lagging behind in Canada. Cost of shipping in Canada are considerably more expensive relative to other countries. And I think it’s quite possible that there is a direct relation between Canada’s sub par E-Commerce presence and Canada’s highly uncompetitive shipping rates. Hence it is of my opinion that Canada Post should evaluate a different approach which focuses on increasing volume in the long-term by providing incentives for Canadian businesses. Though the analysis in this article alone are not sufficient to suggest anything conclusive, I believe that this line of reasoning is adequate to warrant further questions and debate around the issue. My goal here is to not reach a verdict of any kind, but to simply bring attention to this matter that concerns many Canadian business owners.