I ask
the indulgence of my non-Canadian readers; hopefully, you will find it
beneficial to apply these thoughts to your own postal system
As Canadians have, increasingly, turned to emails and
social media for speedy communication, Canada Post, our monopoly letter
delivery system, has seen its volume of mail drop significantly. In response to
the resulting financial pressure, Canada Post began to phase out door-to-door
mail delivery in favour of community mail boxes in urban areas. Of course,
customers, municipalities and postal unions complained vigorously against this
decline in service! No one likes to lose anything they’ve been receiving free forever!
During the 2015 federal election, the--then in opposition—Liberals led by
Justin Trudeau, promised to stop this conversion and restore door-to-door mail
delivery and remove community boxes in those areas where they had just been
installed-- at great cost. Trudeau is now our PM. The conversion program was
stopped but his government is still “consulting” about the future of Canada
Post and his promise concerning the recently installed boxes. In its recently
released report[1], a
Liberal dominated committee of Parliament, The Standing Committee On Government
Operations And Estimates, has, as could be expected, concluded that Canada Post
should “continue the moratorium on
community mailboxes conversion, and develop a plan to re-instate door-to-door
delivery for communities that were converted after 3 August 2015.” Is this conclusion really justified? In fact,
should Canada Post not just be abolished?
The Problem
While the switch to
electronic communication is the major cause of our Post Office’s woes, its
problems are not just of recent origin. The Committee notes that
The
frequency of labour strikes in the 1960s and 1970s affected the reliability of
the postal service. The Post Office Department incurred losses approaching $500
million in 1980-1981.
While it has been profitable “in
almost every year since 1995”[2],
that is not surprising since, with a monopoly on first-class mail, it been able
to raise its prices frequently—at least on that part of its business. In 2015, a further increase of more than 10 percent
(from $0.85 to $0.95 per letter) was proposed but not carried through because
of the current review. As it is, Canadian
letter rates well exceed U.S. rates[3]
for example. While it costs 85 cents to mail a letter within Canada, Americans
can do so for 62 cents [4]The
difference is even more striking for international mail- $2.50 in Canada, Can$
1.51 for Americans. In fact, business contributors to the Committee’s
discussion noted that “ Over the last few years, postage rates have increased
at a faster pace than all other business expenses[294]” and “Raising
prices would increase Canada Post revenues in the short term, but in the long
term it would encourage users even more to
switch to digital solutions.[298]”
The current situation is “not
viable over the long term”, according to consultants Ernst & Young. They forecasted
that by 2026, annual losses of at least $700 million are anticipated. They
concluded that Canada Post’s costs will continue to increase because more than
170,000 new addresses are being added to its delivery network each year while
mail volumes are decreasing. In
addition, Canada Post faces a large unfunded deficit in its employees’ pension
plan since it has been exempted from the requirement faced by private companies
of making regular payments to make up this deficiency.
To deal with this foreseeable
financial crisis, Canada Post has, among other things, introduced its
controversial community mailbox conversion program which was estimated to
generate savings of $400 to $500 million per year. To date, 830,000 addresses (16 % of the planned
5,000,000) have been converted, which will result in annual savings of
$80 million.
Before, I consider whether or
not this conversion should be continued let’s turn to the more general
question.
Is Canada Post a Necessary Public Good?
In an earlier post[5], I
noted that there are certain goods that will not be produced in a free market
or will be produced in insufficient amounts. Pure public goods such as defense,
policing and street lighting will not be provided by private business because
they are indivisible and the exclusion principle does not hold.
That is, you cannot divide the service into little bits that can be bought and sold
individually; the Canadian armed services defend all of Canada and you can’t
buy your own little bit of defense[6]--defense
is not divisible. Moreover, the provider of the service—the government—cannot
exclude anyone from the defense shield because they choose not to pay—unlike
the groceries you buy in the store. If you don’t pay for them, you don’t get
them—you are excluded from the service. Mail delivery is certainly not a pure public
good. The service can readily be divided into the delivery of individual
items—it is divisible. Moreover, if you don’t pay for the service—pay the
postage--you can’t send anything[7].
Even though not a pure public
good, is it perhaps a necessary good that would not be provided in sufficient
quantities if left to the market? Is it
perhaps like elementary education which, if
left to the market, would leave the poor who cannot pay the tuition,
untaught? In that case there are positive neighbourhood effects—we are all
better off if all citizens are reasonably educated. Is that the case for the
postal service?
Let’s imagine for a moment,
life without Canada Post and its monopoly. As it is, most cities have myriad
private courier services that provide “same day” delivery within the city.
There are also various country wide parcel delivery services such as UPS and
FEDEX. In a free competitive world these businesses would no doubt happily
expand to fill the void left by Canada Post. Of course, they would have to develop
a more comprehensive system of transferring the mail to competitors where they
do not have facilities in place. Canadian banks have years ago developed cheque
clearing facilities to permit monetary exchanges between them. I’m sure the
delivery industry could do the same for all mail and parcels. There is no doubt
that private industry could readily fill any void left by Canada Post.
The question is, however, at
what cost? Would the cost of mail delivery rise to excessive heights? With free
entry and exit of new companies, competition would no doubt keep costs for
delivery in most of Canada quite reasonable—perhaps even reduce them. In any
case, competition would ensure that the users of the service pay the real cost
of providing the service. There may, however, be various remote areas which
would end up paying prices so high that we would all agree it is unacceptable;
perhaps, no company would even choose to offer a service there. For these
areas, a government subsidy would be in order since there are positive
neighbourhood effects—we are all better off if,e.g. far Northern communities
have reasonable postal service-- if only, for the purpose of maintaining
Canadian sovereignty through thriving communities. The government could put
these routes up for competitive tender and let the winner provide the service.
The extra cost would then fairly come out of the general purse—not be forced on
other postal users only.
Now, this imaginary private
enterprise system would, of course, be politically impossible to implement, but
it illustrates that Canada Post, as such, is not indispensable. We could make a
start, by simply abolishing Canada Post’s monopoly on first class mail and let
them compete fairly. With their large established network, they would retain an
inherent advantage but who knows what would develop? If even that is a step too
far, perhaps we could simply pass legislation which would automatically remove
Canada Post’s monopoly after one day of a postal strike.[8] Canada
Post and its unions would then be under pressure to continue to provide
service. Obstinacy, would lead to guaranteed job losses. Wouldn’t it be nice to
have that tool in place before the next possible strike in July? Certainly, there is no need to keep Canada
Post alive artificially through, for example, reintroducing postal banking--as
was suggested by some.
Door-to-Door Delivery
Recognizing then, that
Canadians could well get along without Canada Post as presently constituted, we
can approach the issue of door-to-door delivery perhaps a bit more
realistically. Given the financial problems noted above, Canada Post must
clearly operate in an efficient, business-like manner—keeping customer needs in
mind. If not, let’s let private industry do it. Perhaps, they would decide
direct to door delivery is essential; perhaps they would not..
In the meantime, I personally
believe the door-to-door delivery is not a big thing. If Canada Post believes
there are major savings there—let them go full steam ahead (Trudeau’s election
promises not withstanding). I live in one of the neighbourhoods where the
conversion took place last year. In my walks around,[9] I
have noted that none of the recently placed boxes are much more than two blocks
away from any residence. For most people, that should not provide an obstacle. In
fact, even such a short daily walk will have health benefits; people should be
encouraged to “walk for the mail” rather than stopping their car in the street
to pick up the mail on their way elsewhere. Moreover, these days none of the
mail we receive is so essential that we have to check our boxes daily.
Now there are some
individuals who really are physically not able to walk the required distance
and lack care-givers and friendly neighbours who could take on this task.
Canada Post has, in fact, made arrangements to help these people out. If that
service is inadequate, it should be improved.
It would not, however, be out of the question that a small charge is
made for this service for those who can afford it. Not all, the seniors and
disabled are poor! It is generally,
recognized that as we get older some costs go up; we must, for example, pay for
lawn care and other services which we used to perform ourselves. Why should
mail delivery be different?
In any case, continuing with conversion to community boxes
is only fair to those who have already been forced to pick up their mail from
somewhere. As the table below (from the report) shows, only 27 percent of the
people receive door-to -door delivery –at a cost more than twice as much as
that of group mailboxes! Why should such a small percentage of customers continue
to receive this specialized service? Is that really fair? Note that 11 percent
pick up their mail from post offices. That trip is likely longer than the one
to the community mail boxes. It has been the required practice in small towns
for years[10]!
Table 3 – Number of Addresses Served by Canada Post by
Delivery Method and Average Annual Cost per Address, as of 31 December 2015
|
Delivery Method
|
Number of Addresses
|
Percentage of Total Addresses
|
Average Cost per Address ($)
|
|
Door-to-door
|
4,255,742
|
27
|
286
|
|
Centralized point (e.g.,apartment lobby lockbox)
|
4,033,516
|
26
|
121
|
|
Group mailbox, community mailbox, kiosk
|
5,060,871
|
32
|
127
|
|
Delivery facility (postal box, general delivery)
|
1,754,973
|
11
|
72
|
|
Rural mailbox
|
708,909
|
4
|
196
|
|
All methods
|
15,814,011
|
100
|
170
|
Now, critics of the
conversion program of have pointed to the litter left at mail-boxes by
anti-social patrons who are too lazy to take their junk-mail home and dispose
of it their blue recycling containers. In my walks, I have found only one set
of mail boxes where that was a problem. Surely, some signs disparaging this
anti-social activity—e.g. Please do not impose your litter on your
neighbours?—could educate these misfits. If necessary, the postal delivers
could have a container in their little trucks and pick up the worst of the lot?
Is this really a reason to stop the conversion process?
Furthermore, municipalities
have come out strongly against the process for traffic safety concerns. Their solution, however, has been that
municipal staff should review all box placement and municipalities be paid a
fee—thus reducing the potential savings to Canada Post. Wouldn’t a more
cooperative, non-territorial stance solve the few disputed location issues?
Overall, I see no valid
reason to prevent Canada Post with continuing its planned conversion. To
reverse what was recently done as--was promised by Trudeau-- would be the
height of folly.
Other Relevant Posts
Choice of Economic Systems: A Conditional Preference for the Market—what does that mean?
[2] In
1981, it was reorganized as a crown corporation from a government department
thus reducing political influences and more business-like practices.
[3]
Published rates before inauguration of Donald Trump.
[6] You can buy the services of personal armed
guards but they won’t defend you against North Korea.
[7] Alternatively, you could easily be charged on
receipt basis—C.O.D.
[8] Or more than 2 days in any one month.
[9]
Under doctor’s order, I must walk an hour a day.
[10] I
experienced it in the 1970’s in Sombra, Ontario and Port Cartier, Quebec.
