Postal monopoly is becoming a dead letter
With the apparent breakdown in negotiations between the Canadian Union of Postal Workers (CUPW) and Canada Post, a strike starting Friday seems unavoidable. Such a prospect is worrisome, as it would halt postal services and affect many citizens and businesses.
The ongoing negotiations are made arduous by the many challenges facing Canada Post. In the last 15 years, it has seen the number of mail items it handles per Canadian decline by nearly 20% with the advent of electronic substitutes. Moreover, there is a productivity problem at Canada Post that must be solved by efforts from both management and the union.
Despite some improved performance, Canada Post is still plagued by low productivity. The absenteeism rate is 60% higher than the Canadian average for manufacturing employees. Furthermore, unionized Canada Post employees work 10 percentage points less of their paid hours than in other comparable unionized companies in Canada. Productivity is not about working longer hours or reducing wages, it is about getting more value from every hour of work. A single person using a calculator instead of mental calculation is faster and more efficient, thus more productive. This productivity challenge cannot be addressed by tinkering within the framework of a government monopoly.
Canada already allows some measure of competition through the liberalization of the parcels and express market, where, for example, FedEx and UPS compete with Canada Post. However, the Crown corporation still retains an arbitrary monopoly on letters weighing less than 500 grams. In contrast, in the European Union all postal monopolies will have been abolished by Jan. 1, 2013 and a growing number of countries have even opted to privatize their postal operators.
This trend is easily explained: Consumers gain from it. By allowing competition, consumers have more choices and businesses have no choice but to become more productive. On the other hand, with a monopoly it is tempting to solve problems by shifting the costs to captive consumers. Canada Post has done just that in the past when it raised postal rates by 41% in constant dollars in the 10 years following its transformation into a Crown corporation in 1981. As we speak, it is doing the same thing again, as the price of a stamp is set to reach 65¢ in 2014.
In countries like Austria, the Netherlands and Germany, where the postal market has not only been liberalized, but the postal operators were also fully or partly privatized, the results were impressive. In the 10 years following the reforms, postal rates corrected for inflation in these three countries dropped respectively by 11%, 15% and 17%. These impressive results have meant considerable savings for consumers and businesses. The gap in postal rates between these countries and Canada has also been shrinking. For example, postal rates were 54¢ cheaper in Canada than in Germany in 1998, but by 2010, the gap was only 18¢.
As long as a postal monopoly endures, no one will sit at the table to protect the interests of consumers, even though they will foot the bill of any decision. The interests of consumers will become front and centre only with liberalization and privatization, since their interests will be essential to the survival of the company.
Vincent Geloso and Youri Chassin are economists at the Montreal Economic Institute and co-authors of a recent study, Canada Post: Opening Up to Competition.