Give Canada Post a Break: Allowing More Pricing Flexibility and Competition Could Help the Corporation Succeed

39 Pages Posted: 7 Mar 2016

See all articles by Philippe De Donder

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: February 2016

Abstract

Canada Post’s lettermail volumes are plummeting, largely due to the explosion of electronic communication, with no evident sign of stabilizing. E-commerce parcel deliveries are on the rise, but not nearly at the rate necessary to offset the decline in lettermail, and there are many private courier companies competing for that business. Meanwhile, even as the number of Canadian home addresses continues to increase, Canada Post’s plan to end the remnants of door-to-door home delivery, had to be halted in light of the new Liberal government’s promise to maintain the service. The extraordinary disruption that electronic media has caused to the model of state-owned postal services, with their mandate to provide universal delivery, may seem dire. And the threat is indeed urgent. But there are solutions to help Canada Post remain healthy in reforms that have occurred to postal systems elsewhere. This does not necessarily mean immediate privatization (although that has been achieved with some success in Europe): The burden of universal service obligations in a country as expansive and minimally populated as Canada is, could make it difficult for the government to realize appropriate value in selling Canada Post. But if the Liberal government intends to help Canada Post endure in this environment, it should allow the corporation to introduce some basic elements of competition and market- based reform.

The reality is that most Canadian mail today is sent by large firms to customers and other businesses. And most mail is delivered in urban areas, where delivery costs are lowest. But because Canada Post is required to charge identical prices to all customers, urban households essentially help subsidize the postage costs of big business and rural recipients. This need not be the case: Canada Post would be more successful if it could charge varying rates (capped at a maximum) based on the type of sender, volume, and the mail’s destination. One could also imagine scenarios where recipients pay an annual fee for different levels of service, paying extra for door-to-door delivery for example. Canada Post currently allows its clients to compete with it for the sortation of mail (offering discounts for firms willing to pre-sort mail), and there is much more room for competition in the collection, transport and sorting of mail. Already, it is likely that Canada Post has too many sorting facilities, given the advent of new sorting technologies; outsourcing certain upstream operations could help it further reduce its infrastructure and labour costs. There is also a case to be made for Canada Post reducing its delivery frequency and delivery times, especially in higher-cost rural areas. Surveys indicate that Canadians would be fine with that. Allowing competition in delivery, on the other hand, comes with risks of rivals willing to snap up delivery routes in dense urban networks, leaving Canada Post with an even less profitable model in being left to deliver its (and competitors’) products in only high-cost areas. This can be offset, however, by requiring competitors to assume some of the incumbent’s universal service obligations, or at least paying a tax to compensate Canada Post for its obligations. Ensuring these reforms remain compatible with the financial viability of the incumbent would be helped by setting up an independent regulator to ensure the maintenance of a level playing field and to separate the influence of politics from decision-making. In the current era, however, the idea that universal service obligations should be exclusive to mail carriers seems antiquated. It is only rational that the independent regulator be charged with overseeing that universal service obligations are shared between telecom services and mail services.

Keywords: Canada Post, mail, mail delivery, lettermail

Suggested Citation

De Donder, Philippe, Give Canada Post a Break: Allowing More Pricing Flexibility and Competition Could Help the Corporation Succeed (February 2016). SPP Research Paper No. 9-5. Available at SSRN: https://ssrn.com/abstract=2741766

Philippe De Donder (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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