Thank you so much for having me.
My name is Benjamin Dachis. I'm the associate director of research at the C.D. Howe Institute. We are an independent not-for-profit organization that aims to raise Canadians' living standards by fostering economically sound public polices.
I'm the author of a C.D. Howe Institute study entitled, “How Ottawa Can Deliver a Reformed Canada Post”. I argue that it's time that Canada reform its postal services so we can catch up with those in the rest of the world and so Canadians benefit from the most efficient postal system possible.
The scale of Canada Post's competitiveness problem is enormous. Canada Post's labour costs are 41% higher than those of firms like UPS and DHL. That's a big problem. That labour is about 70% of Canada Post's total costs, according to Ernst & Young. The benefit costs at Canada Post are 60% higher than those of their competitors.
As of the middle of this year, Canada Post had a pension solvency deficit of about $8 billion. Keep in mind that Canada Post has received special permission from the federal government to defer the vast majority of the payments it needs to cover its pension deficit. That cannot go on forever.
Projected losses at Canada Post, assuming that it doesn't go ahead with the mailbox conversions, are going from $100 million in 2016 to over $700 million in 2026. Keep in mind that these are likely at the low end of the reasonable range of potential losses, according to the discussion paper from the Canada Post review panel.
This is why fundamental change in the Canada Post business model is critical. That's the long-term solution. It's similar to that of countries like Sweden or Finland, which was to eliminate the government monopoly on letter pickup and delivery completely and allow private entrants to handle the job.
The second option is to eliminate the government monopoly more gradually and make Canada Post lean enough to compete with private companies. This can be done through contracting and franchising.
Only about 40% of Canada Post's retail postal operations are contracted. Those are the operations you see in Shoppers Drug Mart, for example. Canada Post is prevented from closing or franchising almost 3,600 corporate post offices because of a 20-year-old moratorium on the closure or franchising of rural post offices. You may often hear of it as “the rural moratorium”, which is really a misnomer, because it now applies to places like Brampton, Saskatoon, and Halifax. These are major cities in Canada. Keep in mind that this moratorium now covers 96% of all locations operated and owned by Canada Post.
Aside from following through on conversion to community mailboxes, increasing use of contracting, according to the review panel study, is by far the largest saving option they've come across. Converting 800 of the highest-volume corporate post offices—less than a quarter of the total protected stores—to franchise outlets would save $177 million. In a scenario where Canada Post converted or franchised all of its corporate outlets, it could realize savings of over $350 million per year. That alone is half of the hole that Canada Post needs to fill.
Canada Post could extend this model even further and apply the franchising model to mail pickup and delivery to realize even bigger potential savings. If contracting pickup and delivery resulted in similar savings, the cost savings would be dramatic, without necessarily cutting delivery standards.
Contracting arrangements would also create a strong incentive for contracted employees to maximize their productivity, knowing that low productivity or excessive wage demands—or the threat of a work stoppage by contractor employees or Canada Post employees—could result in losing their contracts. Contracted employees and Canada Post employees likely would perform better at lower costs—or both—than what we see now.
Through attrition, Canada Post could gradually increase the share of services and contracts without relying on layoffs, as layoffs of most existing employees are forbidden under the current collective agreement. According to the review panel, 25% of approximately 16,500 in the Canada Post workforce will become eligible for retirement over the coming five years.
Whatever route the government chooses, and whether that route includes a fully privatized Canada Post or one that involves carefully selected private services to be tendered for contractor franchising, the goal really should be a competitive and efficient postal service.
Thank you again for inviting me. I look forward to discussing further in questions.