Canada Post Needs Structural Change to Address Financial Loss: Report

Union pans ‘tired ideas’ proposed by think-tank
August 13, 2013 Updated: August 13, 2013

A new report suggests the federal government allow more privatization and contracting out for mail services in light of Canada Post’s financial troubles, but the Canadian Union of Postal Workers says such a move could result in service cutbacks and government subsidization.

The report, by the think-tank C.D. Howe Institute, notes that Canada Post is at a “critical juncture,” faced with financial losses that are projected to only get worse. 

Studies forecast a 27 percent decline in domestic mail from 2012 to 2020, and demand for magazine delivery, advertising mail, and other services are declining with the increased use of online services. 

According to the report, Canada Post had $188 million more in costs than its $7.5 billion revenue in 2011, and is forecast to have an annual operating deficit of 1 billion.

Privatization

With postal services globally facing similar challenges, some countries have already changed the ownership structure of their mail services, the report notes. 

In this sense, Canada is “lagging major countries” that have already ended the monopoly status of their national postal service when it comes to letter mail to allow competition for both collection and delivery of mail. 

One of the options Canada could take to prevent financial losses is to fully privatize mail services. That’s the route taken by the U.K., which started gradual reforms 10 years ago and is now privatizing all aspects of mail service. 

“A possible made-in-Canada reform approach would not entail full, immediate privatization of postal services, but rather the gradual introduction of contracting arrangements for more Canada Post services,” the report says. 

“Most important is the observation that arranging contracts for various operations could be effected without compromising coast-to-coast uniform service standards and pricing, or existing jobs.”

An option to gradually eliminate the government monopoly could perhaps be done through contracting arrangements, the report proposes, with the government auctioning the right to operate specific parts of postal services. 

Under this arrangement, different parties, including current Canada Post employees, would compete for the right to provide the service, and the bidder asking for the lowest payment would be the winner. 

The contractors would still need to meet policy requirements such as delivery standards and pricing policies, which Canada Post could impose by specifying terms reflecting these requirements in the contract.

As for collective bargaining agreements, the report says the existing agreement between Canada Post and workers forbids layoffs of current full-time employees. But with many current employees set to retire by 2021, the Crown corporation could gradually contract out different aspects of the service without needing to hire new employees. 

Revising Universal Service

The report also recommends revising the way Canada Post’s universal service obligation is being met. 

Currently, Canada Post maintains common prices and service levels in both urban and rural areas by subsidizing mail services in rural areas, resulting in higher costs for urban customers. 

Instead, the government could provide the subsidies directly, rather than drawing the funding from urban customers. 

“Direct government payments to maintain rural services would be transparent and, once the cost became evident, allow for a debate over whether equal pricing was worth the expense,” the report says. 

Report ‘short on innovation’

In response to the report, the Canadian Union of Postal Workers said the C.D. Howe Institute is “short on innovation” and only provides “tired ideas for Canada Post that would result in service cutbacks.”

“Why doesn’t it occur to this prominent private-sector-oriented think-tank that Canada Post should raise new revenue?” union president Denis Lemelin said in a news release.

“Other postal administrations are bringing in expanded services, and staying viable by doing so.”

Lemelin said postal operations in a number of countries including France and Italy are expanding into banking and financial services to increase their revenue. 

The report “advocates an approach that likely leads to service cuts and government subsidization,” the union said.

Canada Post, which is currently holding discussions across Canada on the future of postal service in Canada, said the report “provides further reflection” on the challenges facing the Crown corporation. 

“With the corporation at an important turning point in its long history, we are seeking all views and opinions on how to best serve Canadians in the future,” Canada Post said in a news release.

Follow Omid on Twitter: @OGhoreishi