Will Canada Post survive?

As Charlie Gillis explains, its five-point plan buys time, but it’s no cure for the post office’s ills

So Canada Post has taken a plunge—of sorts. The phase-out of door-to-door delivery is the headline-grabber in a five-point plan released today that aims to drag a once-profitable Crown corporation into the digital age. The post office figures it can cut as much as $900 million annually in costs within five years, mainly by reducing its exposure to its fast-declining lettermail business.

It sounds like wrenching change. The door-to-door postman is an archetype I suspect many Canadians would be happy to pay a bit more to preserve (to say nothing of territorially minded dogs). But as we pointed out last spring, the threat to Canada Post is not temporary; it’s existential. It’s entirely possible that even these decisive steps won’t be enough. A few thoughts:

A rural vs. urban battle over mail still looms.

In political terms, the end of door-to-door letter delivery was the easiest of many options on the table, because the Harper government’s electoral strength lies in rural and suburban communities where the vast majority of customers already travel to gather up the mail (if you believe purportedly “arms-length” Crown corporations are above such considerations, you should probably stop reading now). Single-family homeowners in cities, then, will have a tough time arguing that a trip down to the street corner is an unfair imposition.

Yet the economics of universal mail delivery can’t be avoided forever: it costs more to bring mail to remote places than populous ones, and now that everyone’s getting roughly the same service, further price hikes might cause urban dwellers to wonder why they must pay the same rate to send mail across town as they do to sent it to far-flung corners of the country. You could let them pay less, but woe to the rural MP who must explain this so-called “nonlinear pricing” to his or her angry constituents.

Surviving means competing.

Parcel and commercial delivery represent growth areas for Canada Post, and the company has done a good job setting itself up as the go-to deliverer of online orders for retailers like Wal-Mart. But the post office does not have the monopoly on parcel delivery that it does on lettermail. In cities, especially, it faces serious competition from big courier services and nimble freelancers. The company points to its one great advantage: an unequalled distribution network of sorting facilities, vehicles and people. But every reduction in service eats into that edge.

The pension issue must be resolved.

The company’s plan is carrying a $6.5-billion deficit, and it’s planning to shrink its workforce by more than a quarter, to less than 40,000 workers, which means there’ll be less money coming into the company in the form of employee contributions. On Wednesday, Canada Post confirmed that Ottawa has agreed to provide “temporary relief”—i.e. payments—to ensure the plan remains solvent. The post office, meanwhile, says it plans to reform the plan to make it sustainable (new non-unionized employees, for instance, aren’t allowed to join the old plan). This is a similar reprieve to the one the feds gave Air Canada and, as in the airline’s case, a massive federal bailout would be required if it fails.

Will the feds at some point be forced to subsidize service?

If it doesn’t stop losing money, Ottawa will be forced to rewrite Canada Post’s charter, changing it from a Crown corporation expected to turn a profit to—what? The options are intriguing. One is to hive off the least profitable parts of the business—remote delivery, for example—and put it out to tender to private companies. Ottawa would simply pick up the tab. Another is to partially privatize the company as the U.K. has done with the Royal Mail, hoping pressure from shareholders would drive profitability. It could try New Zealand’s model of simply revising the postal charter to ensure it covers its own losses and debts.

All this might have been inconceivable a decade or so ago, when the postal service was the circulatory system of the national economy. That’s what drove the system to expand to the point 40 years ago when it began delivering daily, five days a week, to every business and residential address in the country (even then, Prime Minister Pierre Elliott Trudeau wondered whether it was a luxury).

But things have changed, and nowhere is that more evident than in the consultations the post office conducted earlier this year among Canadians whose bills, personal notes, gifts and even greeting cards increasingly arrive in email inboxes. Residential customers, the post office said, “often stated that reducing home mail delivery to less than five days a week or relaxing the performance standards (i.e. speed of delivery) would be acceptable.”

In other words, it’s not that we no longer want a universal, full-service post office; we just have to admit we no longer need one.

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