Le Québécois Libre, June 15, 2011, No 290.
After failing to reach an agreement with Canada Post, the Canadian Union of Postal Workers (CUPW) began a series of rotating strikes on June 2. As usual, the dispute centers on wages and benefits. While the outcome of this industrial action remains uncertain, it provides a good opportunity to consider Canada Post’s current situation and its future.
If it is broke…
A Canada Post expert from Carleton University reports that the original postal monopoly was created in England in 1635, when Charles I decided it would help him spy on communications while benefiting the public purse. The deposed monarch’s legacy remains with us today in the Canada Post Corporation Act, which, subject to certain exceptions, grants the entity “the sole and exclusive privilege of collecting, transmitting and delivering letters to the addressee thereof within Canada.”
Over time, that privilege has been eroded. Courier services opened up the high-end market, relying on an exception for “letters of an urgent nature that are transmitted by a messenger.” They cannot compete with regular mail, however, since by law they must charge at least triple Canada Post’s rate for letters weighing 50 grams, currently $1.03.
Such competition pales, of course, in comparison to the impact of the Internet and electronic commerce on the low end of Canada Post’s business. Catalogues, bills, greeting cards, letters, magazines and any number of documents no longer need to be delivered in physical form. Even as new addresses increase by 200,000 annually (an average jump of about 1.5%), Canada Post’s letter mail volumes have decreased by 17% over the past five years, falling by almost 200 million pieces from 2008 to 2009 alone. Average volume per address dipped 13% between 2005 and 2009, from 377 pieces of mail annually to 334.
These trends are unlikely to reverse; regular mail revenues dropped for each of the last four years preceding Canada Post’s last annual report in 2009. A promising alternative revenue stream is direct marketing, whose strong growth from 2005 to 2008 brought it from 17% of Canada Post’s revenues to 18.5% (this figure dropped somewhat in 2009 due to the recession). Then again, Canada Post probably does not aspire to being a state-owned junk mail delivery system.
…Then let’s fix it
Current circumstances are crying out for change. Everything from Canada Post’s cost structure to its very business model merits further scrutiny.
Fix the workforce
An obvious place to start is Canada Post’s under-producing labour force. In 2005, its average full-time employee missed 16 days of work, 60% more than the average manufacturing employee and 20% more than the average unionized worker. The portion of its employees on modified duties is estimated to be up to five times the industry average. In 2004, Canada Post workers were estimated to have worked less than 64% of their actual paid time, or 10% less than other unionized employees. These numbers come with a price tag: in 2008, 64% of Canada Post’s revenues went to its labour costs. This figure was 15 to 20 percentage points higher than the equivalent figures for Australia, New Zealand, Sweden and Austria. (Only the US Postal Service was significantly higher.)
As expensive as Canada Post’s labour force is today, it may be an even heavier financial burden tomorrow. Under its current “defined benefit” pension plan, workers receive a pre-determined amount upon retirement. While it is an employee’s dream, it is highly risky for the employer, who must make up the difference if contributions plus return on investment are insufficient to pay the amount owed.
Defined benefit plans face large shortfalls across the Western world. For example, the pension funds of the London Stock Exchange’s 350 largest corporations face a collective shortfall of £109 billion. An employer that grants its workers a guaranteed benefit upon retirement must be confident that its cash flow will cover any deficiency without soaking up its working capital. Unsurprisingly, 88% of US public-sector workers have hit the defined benefit jackpot. After all, when “management” is short of funds, it simply confiscates them from taxpayers. Conversely, only 32% of American large- and medium-sized employers are willing to bet their businesses on such plans, and for good reason: heavy pension liabilities helped push companies such as Nortel and General Motors Canada into bankruptcy.
Canada Post’s pension plan reports a deficit of $2 billion to $3.2 billion, depending on how its assets are calculated. Nonetheless, CUPW refuses to countenance any changes, whether for current or future employees – and since Canada Post is publicly-owned, taxpayers will inevitably be on the hook for any shortfall. Then again, as the GM and Nortel bailouts show, maybe “private” pensions are a relic of the past.
The upshot is that either CUPW makes significant concessions, or taxpayers will probably have to dish out billions to pay for retirement benefits that are, for the most part, more generous than their own. Of course, while management has acknowledged the need to address the problem, being a Crown corporation whose debt has an implicit guarantee from the public purse certainly relieves some of the pressure to find a solution.
Fix the business model
Another point to consider is Canada Post’s business model, namely its universal service obligation (USO). The USO exists under the Universal Postal Convention, of which Canada is a member. Under that agreement, member states must “ensure that all users/customers enjoy the right to a universal postal service involving the permanent provision of quality basic postal services at all points in their territory, at affordable prices.”
The complement of the USO is Canada Post’s status as a Crown corporation with a monopoly on letter mail. A 2008 strategic review panel’s explanation of that link is worth quoting in full:
If that was too subtle, the government explicitly told the panel that
Canada Post’s vocation is and would remain social engineering, calling
it “an instrument of public policy through the provision of postal
services to Canadians.”