Matthew Lau: The only way to save Canada Post is to privatize it

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Canadians are paying a triple price: disruption of service during strikes, price-gouging on letter delivery and taxpayer exposure to losses

Published Nov 27, 2024  •  Last updated 1 day ago  •  3 minute read

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Canada Post lost $748 million in 2023, its sixth consecutive annual loss, with cumulative losses of $3 billion over that period. And as Ian Lee, an associate professor at Carleton University’s business school, said in a recent interview with CTV News, “Canada Post is going to lose more money next year and even more money the following year.” While Canada Post had a 62 per cent share of the parcel delivery market in 2019, it has since plummeted to 23 per cent, a metric that will not be improved by the ongoing strike of 55,000 Canada Post workers.

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The postal service’s record of losing money brings to mind Milton Friedman’s astute explanation of private versus government enterprises. The private system “is often described as a profit system, but that’s a misleading label,” Friedman explained. “It’s a profit and loss system, and the loss part is even more important than the profit, because it’s what gets rid of badly managed, poorly operated companies.” Meanwhile, in the government system, badly managed, poorly operated companies can lose money and continue shambling on — like Canada Post.

In addition to its poor financial results, one fairly conclusive sign that Canada Post is not well operated and not efficiently organized is that it is unionized. Indeed, the entire economic purpose of a union is to raise members’ wages above the market price — in other words, to drive the cost of labour as high as possible. By design, unions exist to reduce operational efficiency. Demonstrating this commitment to reducing efficiency and inflating costs, one of the Canadian Union of Postal Workers’ demands is for weekend deliveries to be done by full-time employees instead of by contractors or part-time staff, as Canada Post prefers.

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The deleterious effects of unions are well known. Unions break the link between workers’ productivity and compensation through collective bargaining, and in doing so, they discourage work effort, protect unproductive workers, disincentivize workers from investing in their own human capital and kill innovation. These negative effects get worse over time, as workers who value productivity and innovation stay away from unionized jobs, while unionized workplaces attract people who value being protected from the negative consequences of their poor job performance.

Given all this, it is no surprise that unions are highly prevalent in inefficient sectors but don’t tend to do very well in competitive environments — witness the 73.5 per cent unionization rate in Canada’s public sector versus 13.7 per cent in the private sector. The fact is that Canada Post’s parcel delivery service is uncompetitive. In a recent paper, Ian Lee found that the all-in operating costs (labour, vehicles and fuel) of delivering parcels is about $50 to $60 per hour for Canada Post, compared to $40 to $50 for legacy couriers such as Purolator and FedEx, and $20 to $30 for private competitors using gig workers. The union’s demand that weekend deliveries be handled by full-time staff, which will necessitate the hiring of more workers at above-market rates or overtime for existing employees, will only make the Crown corporation less competitive.

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While Canada Post is uncompetitive in parcel delivery, in letter-mail delivery, it doesn’t have to compete — the federal government has given it a monopoly. Which makes its record of losing money even more offensive: not only has Canada Post lost $3 billion in six years, it has done so while gouging customers in the letter-mail market through its monopoly. In the past, Canada Post used its monopoly to keep its net income positive, but now even that is not enough to cover its inefficiency. This means that taxpayers may soon be on the hook for its losses.

Canadians are paying a triple price for Canada Post: disruption of service during strikes, price-gouging on letter-mail delivery and potential taxpayer exposure to losses. The solution to all this is simple: privatize Canada Post at once. In the private enterprise system, as Friedman explained, badly managed, poorly operated, inefficient companies won’t go on very long. Either they transform into better-managed and better-operated companies, or consumers will replace them with companies that are.

National Post

Matthew Lau is a Toronto writer.

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