Not that long ago, everything depended on the mail getting through. Household bills arrived in envelopes with little windows on the front. Love letters were a primary means of romantic connection. And Christmas cards were as ubiquitous as icicles in wintertime.
Today, however, the ubiquity of email, texts, and online billing has robbed letter mail of its economic and social significance—and left the post office teetering on the verge of bankruptcy. Unless its business model changes dramatically, taxpayers will be stuck bailing out Canada Post forever.
“The first thing you have to understand about Canada’s postal service is that the volume of letter mail has declined by 65 percent since 2006,” says Ian Lee, a business professor at the Sprott School of Business at Carleton University. “And this trend is not going to change.”
In 2006, Canada Post delivered 5.5 billion pieces of mail and made a profit of $148 million. Last year it delivered 2.3 billion pieces of mail and lost $748 million. Within a decade, Lee predicts, “Letters will essentially vanish, and with them Canada Post’s core business.”
Lee advocates “major surgery” to Canada Post to reduce its headcount and prevent it from becoming a permanent ward of the state. This includes eliminating all door-to-door mail delivery, ending five-day-a-week service, and closing all stand-alone post offices, replacing them with franchised outlets in grocery stores and pharmacies.
Reforms of this sort are already happening around the world. Last year, for example, Australia Post switched all its customers to alternate-day delivery, while Finland moved to three-day-a-week delivery. But even with substantial service reductions, Lee figures Canada Post will still require some level of government support to maintain mail delivery in rural areas.
If the goal of postal reform is to completely remove the burden of Canada Post from taxpayers’ shoulders, then just reducing its service requirements and workforce will not be enough. The only way to guarantee a future without perpetual public postal deficits is to get rid of it entirely—by selling it to the private sector.
Vincent Geloso is a professor of economics at George Mason University in Virginia and senior economist at the market-based Montreal Economic Institute. “There’s no particular reason why the government should be in charge of mail delivery,” Geloso says. “Canada Post has always been a political entity that takes from taxpayers.”
Geloso advocates ending Canada Post’s monopoly on mail delivery by allowing private firms to compete on whatever terms they choose. Following this, he would sell Canada Post to eliminate the taxpayer’s unlimited liability. “Private competition in the postal business is really easy to achieve,” he insists. “You just need to look around the world.” For evidence on the benefits of privatization, he points to Europe’s long track record of privately owned post offices.
In 2013, the European Union liberalized its entire postal sector. The crowning example of this process is Germany’s highly profitable and highly efficient Deutsche Post. Last year it booked a net profit of 3.7 billion euros (C$5.5 billion). Canada Post has never, ever had a year like that.
Other notable European postal privatizations include Sweden, Belgium, the Netherlands and Austria. Italy only partially privatized its postal business, but is now considering selling the remainder to pay down government debt.
As for the overall European experience, postal reform expert Mateusz Chołodecki at the Centre for a Digital Society at the European University Institute in Florence, Italy, says that after more than a decade of postal liberalization, “for most Europeans there has been no impact, nothing has changed” with their perception of overall mail service. Except, of course, that any losses are now the responsibility of shareholders rather than taxpayers.
With postal privatization having proved its worth in Europe and gaining steam in the United States, Geloso suggests the biggest obstacle for Canada will be overcoming an obstreperous postal union. To solve this issue, he recommends offering the first round of shares exclusively to union members. Not only would this make them partners in the concept, it would also transform Canada Post into a far more efficient company.
“All of a sudden, there would be an incentive [for union workers] to improve productivity and profitability,” Geloso says. “Right now, they have no profit motive.”
Unless decisive action is taken quickly, Canada Post risks becoming a permanent burden on taxpayers, sucking up valuable resources while providing a service few Canadians want or are prepared to pay for. Given the experience in Europe, the surest path to success lies in letting the market take over. It’s time to sell Canada Post. The cheque is no longer in the mail.
