Montreal, July 7, 2016 – While the threat of a labor dispute hangs over the delivery of mail by Canada Post starting tomorrow, the MEI argues that Ottawa should follow the example of several European countries, which have abandoned the obsolete model of monopoly mail delivery and opened up the market to competition.
Canada Post warned that if negotiations break down, the Crown Corporation will not be able to continue its activities, and that, with minor exceptions, no letter or parcel would be delivered.
“Each time there’s a strike or a lockout, it is consumers and companies that pay the price,” says Vincent Geloso, Association Researcher at MEI and author of a study on this topic in 2011. “Because it’s a monopoly, Canada Post faces less competitive pressure and the union is therefore trying to impose its demands by threatening to strike, since there’s no danger of the post office going out of business.”
Among other things, Canada Post management wants its new employees to be covered by a defined contribution pension plan rather than by the existing defined benefit plan, in which the annuity amount is fixed in advance regardless of fluctuations of the market. Even though Canada Post’s pension plan has a deficit of $4 billion, the union categorically refuses to back down.
Yet it is taxpayers and consumers who risk being stuck with the bill for such a defined benefit plan, which the private sector is increasingly abandoning.
The MEI notes that the monopoly on mail delivery has been abandoned by several countries facing similar challenges to those Canada Post is dealing with. Sweden and New Zealand have opened up their postal services markets to competition. Germany, Austria, and the Netherlands went further, privatizing their Crown Corporations, a move which led to significant rate reductions in the long term (up to 17% in Germany).
“These models stand in sharp contrast with Canada Post which has increased stamp prices by 44% in the last ten years” says Vincent Geloso. “Competition would allow consumers to benefit from more choice and better prices.”
Canada Post is facing structural challenges that have been evident for some time: significant reductions in mail volume, out of date infrastructure, low productivity, and a difficult financial situation. Despite major efforts undertaken since 2013 to improve its performance, including a substantial reorganization of its services, the corporation still has difficulty keeping its costs under control.
“The Canada Post model is no longer appropriate for today’s world. By allowing new companies to emerge, not only would consumers be better served, but taxpayers would no longer run the risk of having to bail out the Crown Corporation,” concludes Mr. Geloso.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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