Benefit costs driving magazine postal increases

Canada Post's margins from delivering a typical magazine have slid about 4% in the past year, mostly the result of an astonishing 10% increase in costs, according to an analysis prepared by Michael J. Fox, Senior Vice-president of Circulation and Development at Rogers Media.

It’s disappointing to see the 2006 margin setback because we fear Ottawa-based CPC will pursue more rate increases rather than serious measures to control expenses. This upsets publishers, who are pros at watching costs, with metrics such as cost per editorial page, cost per copy printed, etc.

Fox's invaluable annual report on postal matters acknowledges that the Canada Post annual revenue increase per piece of publications mail was a relatively modest 4% in 2006 (down from 6% in 2005 and 8% in 2004) . The current rate for a typical magazine is $0.51. CPC delivered 536-million Pubs Mail copies in 2006 and charged $275 million to do so.

He also notes that Pubs Mail volumes have declined 1.3% a year since 2002 while CPC adds about 0.9% more delivery points annually, so the ratio of magazines-per-address is declining about 2.2% a year.

Why did the cost to deliver a magazine jump 10% in one year? First, it appears that when one does a similar calculation on other types of mail, those costs to deliver also shot up in 2006. Driving this appears to be the high cost of all the long-service CPC employees who are retiring. CPC operating expenses jumped 7.2% to $5.8 billion, including 5% more for salaries, 22% more for benefits, and 7% more for fuel. Just to illustrate the scale, employee benefit costs increased $161 million, or 22%, in one year. CPC has 70,000 employees — and it expects 27,000 of them will retire over the next decade. This may become like the auto industry where a big portion of a new car price goes for pensions and healthcare costs.