Canada Post and the Universal Service Obligation

How much money Canada Post is legislated to lose every year.

Canada Post is obligated under the Canadian Postal Service Charter to a uniform pricing structure for any mail services delivered across Canada.

Anyone will quickly notice that sending parcels and mail to remote places such as Rankin Inlet, Nunavut, or Hopedale, Labrador is going to cost more than any profit that could be generated out of these communities. And there are some rural and urban routes too, especially those that have a large transient population and low levels of income generation, that Canada Post would lose money on. However, legislation requires Canada Post to absorb these losses.

Most businesses would not survive with legislation requiring them to lose money, but Canada Post has been able to succeed by profiting in other parts of their delivery network. They also gave back money to the Government as a shareholder dividend for many years until 2008.

With such an odd arrangement Canada Post should be demonstrating in their annual financial statements their losses due to Government regulation. This figure is completely hidden and cannot be factually arrived at without Canada Post opening its books to closer scrutiny. This has yet to happen.

A preliminary estimate still can be made.

The United States Postal Service may provide the answer. They too are restricted under similar uniform delivery standards. It has released some numbers with one report specifically identifying that legislation forces 4.2% of their delivery routes to lose money.(1) Canada Post has many more remote areas to service than USPS and it would likely move the percentage higher, likely to 5% of delivery routes. If this is the case, Canada Post may have been required to lose approximately $375 million dollars this last year(2) which was to be offset by profits in other routes. If one examines this over a ten year period, and makes a slight adjustment for less revenue in the earlier years, Canada Post may have been forced to lose over $3 billion dollars over this period. This has been historically covered by profits in other areas by Canada Post, but now it can no longer be sustained.

This is all hypothetical. 5% of routes losing money may not be 5% of the total revenue. It could be lower or higher based on a calculation of the type of services, volumes, labour, transportation and infrastructure costs in relation to specific routes. These figures are not available. This calculation is based on the few numbers found so far.

One must keep in mind about an older study by what was then known as the Postal Rate Commission(3); an organization which was sponsored by the U.S. Postal Regulatory Commission. The results did not find rural routes less profitable. It stated there was an equal mixture of losses in both the urban and rural routes.(4)

The Commission recognized serious losses in their air parcel program to Alaska, which would correlate with Canada Post’s parcel shipments to northern and isolated Canadian communities. The Postal Rate Commission recommended that regular parcel rates be dropped and more expensive alternatives be given in order to make these routes cost-effective.(5)

_____________
(1)The Cost of Universal Service in the U.S. and its Impact on Competition
(2) http://www.canadapost.ca/cpo/mc/assets/pdf/aboutus/annualreport/2012_AR_financial_en.pdf Pg. 31. Based on Canada Post’s segment annual revenue of $7.5 billion dollars.
(3)The Postal Rate Commission changed its name in 2007 and is now known as the Postal Regulatory Commission.
(4)IBID The Cost of Universal Service in the U.S. and its Impact on Competition
(5)IBID The Cost of Universal Service in the U.S. and its Impact on Competition

Advertisements
This entry was posted in Financial and tagged , , , , , , , . Bookmark the permalink.