Blogs & Comment

Canada Post's inefficient monopoly

It's time to put out to pasture moribund, government-run mail delivery.

An unidentified worker heads past delivery vehicles at the post office in Halifax on Saturday, May 28, 2011. (Andrew Vaughn/CP)

Canada Post is poised to go on strike at the end of May. What better time—last-minute compromises notwithstanding—to shine the spotlight on this aging dinosaur.

Management says the demands of the Canadian Union of Postal Workers will increase labour costs by $1.4 billion. In the past, higher costs could be absorbed without too much trouble because Canada Post had a monopoly on mail service. Budget deficits were covered by simply telling consumers they had to pay more—as occurred in 2009 with the announcement of a 20% increase in stamp prices phased in over five years to 2014.

But people can now send letters, documents, and payments by email and other electronic channels, almost instantaneously and with zero or little cost. Not surprisingly, the volume of “snail mail” is on the decline in Canada. Households, for example, received an average of 334 letters in 2009, compared to 377 in 2005. The absence of economic incentives to keep costs down and respond to marketplace trends ensures the slide in mail volume will likely continue (despite the proliferation of “junk mail”).

Meanwhile, there is a deficit of $3 billion in CUPW’s pension plan. And workers seem more interested in getting by with the least amount of effort: according to studies cited in a recent review by the Montreal Economics Institute, absenteeism was 60% above the average for the manufacturing sector, and postal employees worked only 64% of paid hours. Add to that an estimated bill of $4.4 billion for the maintenance/upgrading of infrastructure such as mail-processing centers.

Other countries have responded to such rising costs by opening up mail delivery to competition and private capital, particularly in Europe where members of the European Commission are committed to fully abolishing postal monopolies by the end of 2012. Germany, the Netherlands, Sweden, New Zealand and Austria have already had many years of privatization and competition, resulting in substantial reductions in costs, higher productivity, better service and lower prices, as reports the Montreal Economic Institute.