Opinion: Canada Post is failing at being a business and must be restructured

Ian Lee is an associate professor in the Sprott School of Business at Carleton University, and author of the Macdonald-Laurier Institute report Is the Cheque Still in the Mail? From 1982 to 1984, he was employed by Canada Post in corporate finance and banking.

Canada Post is in an existential struggle for its very survival.

This month, the chief executive finally – after years of evidence – stated Canada Post “faces larger unsustainable losses in the future” without major reforms.

Canada Post recently released its 2023 annual report, showing a $750-million loss for the year, taking its total losses over the past six years to $3-billion. Although CPC has a mandate to be a self-sustaining government corporation, it has experienced increasing losses every year since 2018.

So how did we get here?

Canada Post is suffering from the combined effects of several costly inefficiencies. It has a universal service obligation to deliver collapsing letter mail volumes to every urban, suburban, rural and remote address – 17.4 million in total – five days a week. It maintains an unsustainable 3,500 corporate retail post office network, where expenditures vastly exceed revenues in each outlet. At the same time it pays wages and benefits that are on average significantly higher than those of its competitors, including time-and-a-half on weekends. And it operates an inflexible mail route allocation system.

Letter volumes plummeted to 2.2 billion in 2023 from a peak of 5.5 billion letters in 2006, or a 60-per-cent decline, owing to the digitization of virtually everything informational. Yet, the number of delivery points has grown by three million addresses over the same period to 17.4 million addresses across Canada.

Less and less mail, year after year, to more and more addresses, for less and less revenue.

This is a terrible business model that is – and will be – producing ever larger annual losses.

The parcels market driven by e-commerce was supposed to save Canada Post. Yet, in the past four years, Canada Post lost 50 per cent of its market share. Low-cost couriers made large gains in the package delivery business by focusing on the most lucrative suburban and urban locations with less expensive labour and an asset-light infrastructure, while leaving Canada Post with an asset-heavy, higher-labour-cost infrastructure to deliver to more costly areas.

For Canada Post to survive, the Government of Canada must legislate changes to mandate urgent structural reforms. The Crown corporation must make major reductions in costs.

The fastest way to reduce the cost of delivery is delivering both mail and packages to community mailboxes and package lockers. Delivery to the doorstep is 75 per cent more expensive than delivery to a community mailbox and is 118 per cent more expensive than delivery to an apartment building.

More than 70 per cent of Canadians already receive mail at a group mailbox. The government must revoke the unsustainable decision to continue home delivery to the 25 per cent of households in Canada who live in the most affluent urban neighbourhoods, saving more than $500-million annually.

Canada Post must also adopt dynamic route scheduling. It must replace static, fixed letter carrier routes across every community in Canada, that send employees to all 17.4 million addresses five days a week, 52 weeks a year, even when there is no mail to deliver – a “Potemkin Post Office.” Dynamic route scheduling ensures routes served are revised daily based on mail volumes.

Then there is the reduction of labour costs. While Canada Post mail volumes have declined 60 per cent since 2006, employee head count has only declined 5 per cent in that same period. Collective bargaining agreements and management compensation must use the number of pieces delivered per labour hour as a key metric for determining compensation. As volumes continuously decline, Canada Post must shed labour costs through attrition, retirements and buyouts.

Lastly, Canada Post needs to end its unsustainable moratorium on franchising. The 60-per-cent decline in letter volumes has led to collapsing use of post offices. Canada Post must convert the approximately 3,500 corporate-owned single-use postal facilities to franchises, saving more than $1-billion annually, to provide postal services exclusively in drug stores, grocery stores and other convenient locations with much longer hours of service.

And Canada Post should sell off post office land for housing – which not only generates revenue but helps solve a growing crisis in this country.

Canada Post has less than five years to reform, restructure and transform from an analogue business to a digital business in the digital economy, or it will disappear like Blockbuster Video. Taxpayers will not support annual multibillion-dollar losses for a Potemkin Post Office with fewer and fewer customers and less and less mail.