Canada Post’s Unsustainable Monopoly Must Embrace Competition

The arbitrator in the conflict between Canada Post and its employees has sided with the proposal made by the management of the corporation regarding one of its unions. However, the main union, the Canadian Union of Postal Workers, is holding out. Representing 50,000 workers, that union does not accept any of the proposed changes to the current retirement system. This sticking point means that disruptions to postal services are still possible. And this could cause damage to the Canadian economy.

However, this damage will not be as important as that observed during previous disruptions. Thanks to technological innovations, consumers and businesses do not rely as much on mail as they used to. The appearance of email and online billing has reduced the relevance of postal services so much that Canada Post's mail volume has fallen by 24 per cent since 2006. As a result, Canadians are less and less affected by disruptions to mailing services. 

Nonetheless, Canadians are shouldering a much more important burden: that of an inefficient public monopoly. While it faces competition in the market for parcels, Canada Post has a monopoly on letters weighing less than 500 grams — the lion's share of mail volume. Like all monopolies, Canada Post is tempted to solve its problems by shifting the costs to captive consumers instead of adapting its business to the new reality.

MEI's associate researcher, Vincent Geloso, points out that after being transformed from a government department to a Crown Corporation in the 1980s, Canada Post opted for that approach and increased stamp prices by 41 per cent in the span of 10 years (adjusting for inflation). 

Today, facing the challenge of technological innovations, Canada Post has done it again in the hope of staying afloat. Since 2007, the peak point of mail volume, the Crown corporation has seen the inflation-adjusted cost of each unit of mail delivered increase by 19 per cent. To deal with these rising costs, it increased the price of a stamp from 52 cents to 85 cents (when sold in packets). Adjusting for inflation, this translates into a 44 per cent price increase. It need not be this way.

Consider the case of Europe. On Jan. 1, 2013, the European postal market was fully liberalized. In all of Europe, companies can contest long-established postal operators in all market segments. Some countries went further. In the 1990s, large countries like Austria, the Netherlands and Germany opted to partially or fully privatize their postal operators. Later, smaller countries like Belgium, Portugal and Malta followed suit. In 2013, the government of the United Kingdom ceded 70 per cent of its shares in the Royal Mail.

While these countries faced the same technological challenges as Canada, the reforms meant that European postal operators could not simply increase prices to stay afloat. Pressured by competition, they had no choice but to become more productive. As a result, they adapted by restructuring their activities, reducing their costs and modernizing their services to meet the changing tastes and needs of consumers.

The results were beneficial to consumers and businesses. In the 10 years following privatization and liberalization in Austria, the Netherlands and Germany, postal rates adjusted for inflation dropped respectively by 11, 15 and 17 per cent. According to the Survey of Letter Prices in Europe, countries that privatized either exhibited declines in prices or modest price increases well below those observed for state-owned operators.

And these estimates concern only single letters. The competition is stiffer in the market for bulk mail where discounts and rebates are common practices to gain consumer loyalty. To top things off, the quality of the service has increased, as indicated by reductions in delivery times.

Technological innovations may be reducing our reliance on old-fashioned mailing services, but the European experience shows that postal operators can adapt without forcing consumers to shoulder greater burdens. However, this is contingent on a process of liberalization, privatization and increased competition. As we are facing another labour conflict at Canada Post, it's time to consider the best way to proceed in that direction.

Jasmin Guénette is Vice President of the Montreal Economic Institute. The views reflected in this op-ed are his own.

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