The end is in sight for letter mail, writes Ian Lee in the Financial Post. Our national mail carrier, Canada Post, better be prepared.
Lee is the author of “Is The Cheque Still In The Mail?”, a recently-released MLI paper that examines next steps for making Canada Post sustainable.
By Ian Lee, July 30, 2015
In the past, “neither snow nor rain nor heat nor gloom of night” could keep postal workers from their appointed rounds. So goes the famous quote carved on the main post office in New York City. But it is the Internet and the exploding number of alternative electronic communications technologies, not the elements, that will soon force dramatic changes to Canada Post Corporation (CPC).
The end is in sight for a form of communication that dates back to the system of horses and riders that crossed the Persian Empire in a week and evolved into the mighty Crown corporation that spans this nation with approximately 60,000 employees delivering mail five days a week to over 15 million addresses. In the 20th century, the Post Office became the partner of the banking and payments system, captured in one of the most famous phrases in the language: “the cheque is in the mail.”
15,000 of CPC’s 60,000 employees will leave within five years to retirement
The federal government must face the realities forced on CPC: plummeting use of letter mail fuelled by adoption of electronic communications technologies such as e-billing, e-banking, e-deposit of paycheques and pensions, digital flyers, email, texting, social media. Between 2006–2013, the volume of mail per address declined 30 per cent, but the number of addresses serviced grew by 1.2 million, resulting in an unsustainable business model. By 2025, all letter mail and advertising mail in every part of the country is almost certain to disappear.
Letter mail which is by far the most profitable product line of CPC accounts for 50 per cent of total annual postal volumes, while admail or “junk mail” accounts for another 20 per cent by volume. Yet, unit volumes of these two products accounting for 70 per cent of CPC volume are declining by 5 per cent annually.
While home delivery was terminated for new residential communities in the 1980s – a third of a century ago – older communities in the urban core were grandfathered to continue to receive mail to the door. This created a two-tier postal service with 32 per cent of Canadians receiving delivery to the door in older, mostly higher income neighborhoods such as Rockcliffe in Ottawa, Outremont in Montreal, The Beaches and The Annex in Toronto and Shaughnessy in Vancouver while 68 per cent of Canadians in the rest of Canada adjusted to community mailboxes.
In 2013, the government announced the phasing out of door-to-door delivery for the 32 per cent of households that still receive it to generate an annual savings of $500 million annually. However, the move to community mailboxes met with significant backlash from union groups. Both the NDP and the Liberal Party of Canada have promised to reverse the $500 million savings decision, making it an issue for the 2015 election.
I propose policy changes that will allow a “bridge to the future” to facilitate CPC’s transformation from a highly regulated mail delivery entity where volume demand is collapsing. As 15,000 or 25 per cent of CPC’s 60,000 employees will leave within five years to retirement, these changes can be addressed through attrition.
Recommendations
Do not Privatize Canada Post
Privatization will not fix the structural changes needed to address declining demand for delivery of letters and flyers; and no private sector actor would want to take on the current business model anyway.
Eliminate the Postal Monopoly or exclusive Privilege to Deliver Letters
Electronic communications substitutes such as e-billing, e-banking are already cherry-picking the lucrative parts of CPC’s business. Maintaining the monopoly simply slows the inevitable adjustments required.
Replace all Door-to-Door Mail Delivery with Community Mailboxes
Community mailboxes cost less than half the price of door-to-door delivery with savings of $500 million annually. They service a quarter of Canadians already. All Canadians should receive the same level of postal service.
Reduce Daily Delivery to residential (not business) Customers
Delivery is very labour-intensive. Declining volume reduces the need for daily delivery. However, businesses need to respond to customers who still use the physical post.
Franchise all Corporately-owned Post offices
In 1994, the Chrétien government imposed a moratorium on closing and/or converting corporately operated post offices in rural Canada. Many of the remaining 3,400 post offices, especially those in rural areas, could be franchised, providing greater service and longer opening hours to residents. CPC estimates that 2/3 of total annual operating costs of a post office are eliminated by franchising.
Consolidate processing facilities
With a projected further 25 per cent decline in postal volumes by 2020, in conjunction with much more efficient mail sorting technologies, we do not need to maintain the 21 processing plants currently working across the country.
Implement the Canada rural broadband strategy by 2020
The federal government has pledged to help the 20 per cent of Canadians without high-speed Internet, mostly in rural areas, to gain access within five years. This would facilitate the transition away from letter mail.
Deregulate CPC Post Pricing For Letter Mail
Wage and price controls are widely recognized to be a failure. Several European countries have deregulated their postal services. Mail pricing should reflect the true cost of the mail service.
Revise the Canadian Postal Service Charter and the Universal Service Obligation
This is necessary to reduce the frequency of residential delivery and to support franchising and outsourcing. However, within five years, CPC should be given the discretion to determine the frequency of delivery based on its own assessment of demand.
While the government has implemented some effective changes, the rapidly changing market forces affecting mail delivery require even more dramatic reforms. If all the reforms proposed in this paper are implemented, the restructured CPC will be a quasi-virtual corporation with a government-owned head office to manage and supervise franchised outlets.
Ian Lee, an Assistant Professor in the Sprott School of Business at Carleton University, was previously employed in CPC Head Office in the Finance and Treasury Group in 1983-84. He is the author of a Macdonald-Laurier Institute report entitled Is the Cheque Still in the Mail?
