Front Burner - Is Canada Post doomed?

Episode Date: December 16, 2024

Late last week, federal labour minister Steven MacKinnon recommended that Canada Post workers, who have been on strike for more than four weeks, be ordered back to work until May 22, 2025. In the meantime, an inquiry would look into the roadblocks preventing the two parties from getting to an agreement.This labour dispute has led to a lot of debate and discussion about the future of Canada Post.Ian Lee is an associate professor at the Sprott School of Business at Carleton University and has studied Canada Post for many years. He walks us through the crown corporation’s grim financial situation, how its business could adapt, and its uncertain future.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. I am making this decision to protect the interests of all Canadians. It is not a decision I take lightly, but in this situation, it is the right one. Hey everybody, Jamie here.

So there is a very decent chance that Canada Post workers, who have been on strike for a little bit over a month now, will be back on the job early this week. That's not because they've sorted out all their demands for higher wages, better pensions, improved health benefits with the Crown Corporation, but because federal labor minister Stephen McKinnon made the controversial decision to step in here. He's trying to order 55,000 employees back to work until May

while appointing an inquiry to make recommendations with the goal of getting to an agreement. The Canadian Industrial Relations Board now has to decide if they're going to accept McKinnon's proposal. No word as of late Sunday afternoon, but it's widely believed that they are going to back the minister. This labor dispute has led to a lot of debate and discussion about the future of Canada Post. Last year, it reported an annual loss of $748 million, and that's despite having sold off parts of its business to help stay afloat. To discuss the future of Canada Post, I'm joined today by Ian Lee. He's an associate professor at the Sprott School of Business at Carleton University,

and he's studied Canada Post for many years. Ian, hi. Thanks so much for coming on to the show. My pleasure, Jamie. So it's safe to say that you've been critical of Canada Post's business model for a long time now. And then earlier this fall, you put out a report saying that it's reaching a tipping point of unsustainability. So I want you to lay that out for me, if you don't mind. Why is Canada Post hemorrhaging so much money?

Starting in 2006, quite some time ago, that was the high water mark for letter mail delivery in Canada. And it has gone down every year since. 70% of the letter mail pieces. So we're not playing games with dollars and inflation and price increases. Actual numbers of letters mailed has decreased by 70%. This is the core business for 250 years of the post office and post offices around the world. So their second important business, nowhere near as large or important as letter mail, was parcels. From the audited annual report, the post office has advised that they have lost 50% of their market share in parcels

in the last four years. So you have a company where they have essentially two product lines, one's letters and the other's parcels, both are collapsing. Right. No one does the first one anymore and they're losing the market share for the second one, the parcels. But why are they losing so much of a market share and why so much in the last four years when it comes to parcels? Until the pandemic, they had a good market share, 61% to be precise. So they were doing some good things. However, with the pandemic, when e-commerce exploded, what happened was the e-commerce companies like Amazon had

demands for faster and faster service. And so the gigs entered. And these gigs were small independent contractors working for, let's be blunt, less money. And they typically owned their own vehicle. So I got the data. This is the one data point in my report that is not in the annual report of Canada Post because they won't disclose it. I contacted them and said, look, I need for comparative purposes to know what is your average cost for the truck, the driver, and the fuel across Canada. They said, oh, yes, yes, we have that data, but that is absolutely secret. You cannot have that. Well, I didn't give up. So I contacted two very large courier companies in Toronto and they said, we'll provide that information so long as you do not

quote us or cite us. They estimate that Canada Post, the truck plus the driver plus the fuel is $60 to $65 per hour to operate. I said, okay, what is your cost in the courier, the private for profit couriers? They said, our costs average 40 to $45 per hour truck driver and fuel. I said, okay, well then you're in a pretty good position. You've got a significant competitive advantage over Canada Post, right? They said, no, we've got the same problem Canada Post has. The gig contractors have come in and they're undercutting all of us. I said, okay, well, you must have a sense of their costs. They said, yes, we do.

$25 per hour. Now, this is about a rhythm. I'm not being flippant when I say this. This is about arithmetic. $25 an hour all in is always going to defeat or trump a company that's got a cost structure at $45 or much, much worse, Canada Post, at $65 an hour. They are not even remotely competitive in parcels. So guess what the e-commerce companies are doing? They're shifting and switching to the gigs.

Right. But this idea that the gig workforce makes it impossible for Canada Post to compete with, you know, I've heard the argument that that's in part the fault of the federal government for not having better regulations around gig work to prevent this from happening. And, you know, what's your take on that? In other words, the $25 isn't something, an hour isn't something to strive for. That this isn't really the society that we necessarily want to live in here. Jamie, I understand that argument. Believe me, I've heard it from many, many people. And we live in a market economy. We do. We don't regulate wages and prices.

We regulate minimum wage. So the gig operators are certainly not violating any laws. They're well above minimum wage. And minimum wage is $17 an hour. And while it may offend a lot of people that there are these more competitive individuals and companies willing to undercut, to be very blunt, it's competition. And this has been the history of the market economy. So to your point, your larger point, Canada Post, and I have not advocated privatizing

it, I've not advocated closing it down. But I've said that the reality of these fundamental market forces, these structural changes in our society are going to drive a restructuring of Canada Post. The CEO said, we were structured to deliver five and a half billion letters. We're delivering around two billion and they're declining every year. He said, this is unsustainable. So they're going to have to restructure to a much smaller parcel company that is a partnership and will probably, yes, pay lower wages.

And if they don't, then they'll probably disappear. Ian, I don't want to belabor this point, but before we move on, just if I could go back to the $25 an hour number. If these gig workers are using their own cars to deliver these packages, when you take into account wear and tear on the vehicle, gas, do you think they're getting minimum wage? Do you think they're taking home minimum wage? I don't know because I haven't seen the data. I haven't analyzed the data. There's a couple of points here, though, Jamie. We have to separate this out. I'm trying to argue the following because I think the data is crystal clear that it shows this. in the major urban, the major cities across Canada. In other words, where the cities where 80% of Canadians live, according to StatsCan.

And when I say major, I don't just mean Toronto and Vancouver and Ottawa and Montreal. You know, any city of a decent size, you know, Thunder Bay, you know, Sudbury, where they do have private for-profit couriers. There's no question that whether they're gigs or whether they're the regular courier companies, the regular courier companies are 50% more competitive than Canada Post. And so what I'm arguing is that the data is showing that Canada Post is less and less relevant in the urban cities across Canada where 80% of us live. I am not suggesting, therefore, let's throw the people in the rural and on First Nations reserves, Indigenous reserves across Canada or in hamlets and on First Nations reserves, indigenous reserves across Canada, or in

hamlets and villages. I grew up in rural Eastern Ontario on a real farm. The nearest neighbor was a kilometer away. That's the true rural. So what I'm arguing is that the restructured Canada Post is going to have to take into account that there will be parts of Canada where the private couriers don't go. And so what I'm suggesting is that I think the game is almost over in the cities. We're going to have to restructure the post office to, A, focus on parcels because letters are going to vanish in the next five to seven years. And I think the data is very clear. So it's got to be a parcel-driven company. And I think the data is very clear. So it's got to be a parcel driven company basic ideas with you. Postal banking, post offices would provide basic financial services like letting

people access their checking and savings accounts or get a loan. And this is done in a number of countries like France and New Zealand. So instead of kind of slashing large parts of Canada Post, why not do this? I'll explain why. And I should disclose, I am a former commercial banker. And so I went and looked up the data because I'm completely evidence-based. And I use StatsCan data and the FCAC, the financial consumer agency that is a non-profit government crown corporation. 99% of Canadians have a bank account for point one.

Point two, the Postal Savings Bank was closed in 1968. I found this out during my PhD thesis by the then Trudeau, the Pierre Trudeau government, simply because the numbers using it had dwindled down to a tiny, tiny, less than 1% of the population. Canadians weren't using it because we have

six very large banks that have 95% of the bank market share in Canada. And so I don't see the alleged niche or opportunity for the post office to go in there. Thirdly, the postal savings banks, this is where I think with respect to those people in CupW that advocate this, they just don't understand banking because they don't work in banking like I did. When you take a deposit, that deposit is a liability to the bank or the post office. They have to pay interest on the deposit to the customer. How banks make money is they then take that money that they brought in on deposit

and lend it back out in car loans, mortgage loans, and commercial credit. So what we're really talking about, but they don't realize this, is we're talking about a fundamental transformation of the post office. We would have to send thousands and thousands and thousands of people back to get an MBA or at least an undergraduate degree in accounting or finance to become trained bankers. And every one of those branches of the banks are wired up using very expensive, very high-speed dedicated data links. That cost to do that would be in the multiple, multiple billions. And there's no evidence that they would be able to compete against the Canadian banks. In the Dragon's Den, a simple pitch can lead to a life-changing connection.

Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you.

Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. Let me give you a couple other ideas, though. Instead of unscrambling the egg, why not use

that infrastructure for EV charging stations or food delivery, right? People point to a need for this kind of service in the North where food is especially expensive and inaccessible. What about that? This is exactly what I've been talking about when I say they've got to pivot to courier, to parcel post. This is a variation or a subset of being a parcel post company as the society ages not just gets older the average age i mean there's more and more and more older people they would rather have their prescriptions delivered to them at home they would rather have their food and i could see myself one day when i'm i don't know 85 or something when i would use those services. This is the future. If there is a future for Canada Post, when I said parcels, I'm using parcels in a very generic way to describe taking

things to the person at their home. Whether you call it a parcel or an order of food or an order of groceries or an LCBO order of a couple of bottles of wine. They're all the same business model. You are delivering something physical, not digital, to an individual home. This, if there's going to be a future for Canada Post, this is it. Okay. And just very quickly, what do you think about the EV charging stations? Could that provide an extra stream of revenue that would help this Crown Corporation continue to pay its employees? I think a lot of people might just think properly because that's something that we might just want to do, right? Not resign ourselves to this future of gig work. Hi, my name is Jan Simpson, the National President for the Canadian Unit Postal Workers.

We've been bargaining with our main employer, Canada Post, for over a year. And what are we fighting for? We're fighting for fair wages. We're fighting for improved health and safety. We're fighting to retire with dignity. And we're fighting to expand the public post office. We're fighting to retire with dignity. And we're fighting to expand the public post office. And all these things create what? Good jobs. Good full-time jobs.

Not part-time, low-wage, different benefit plan wage jobs. Well, let me unpack this. There's two separate issues, okay? The one is their wages and the other is the sheer number. The post office is going to be restructured into something much smaller. I'm not, I don't know how small. I mean, there isn't a courier parcel post company in this country that has 10,000 employees. Now, the Canada Post will have a larger mandate because they go to the rural and remote to many, many more addresses. They go to 17 million addresses. So the post office of the near future, and I mean in the next two or three or four years,

after the next election, because I believe the next government after this coming election this summer is going to be facing this fundamental reality as the deficits get larger and larger. So it's going to be a post office that'll be 10,000 or 15,000 or 20,000 employees, which suggests a downsizing of 30,000, 40,000 employees over the next four or five years because it just simply, I can't see any business model large enough. Now, to the wage side, this brings us back to our previous conversation about the competition. Even if the gigs disappeared for whatever reason, through regulation or whatever, they're still not competitive.

And I know some listeners will say, wait a minute, I can get a cheaper price on some parcels from Canada Post. And I just point everyone to the fact that they're losing billions of dollars. And that's because they're underpricing the cost of their service relative to their cost structure. And so my point is, is that they've got to fundamentally address their cost structure. And so my point is, is that they've got to fundamentally address their cost structure. And I'm not exonerating management. The idea that they paid bonuses when they were going down and declining so precipitously is I just think outrageous. When I talk about downsizing, I don't just mean GovW. They've got a very large head office and it's going to have to be downsized.

As much as there's been frustration about the strike over the past month, I've also seen people sympathize with postal workers and the challenges that they go through to do this work, right? In Rain or Shine, year-round, I think a lot of people know their postal worker. It reminds me of this episode of Anthony Bourdain's show, Parts Unknown, from years ago, where he talks about postal workers in snowy Montreal. Here in Montreal, the simple task of delivering the mail in winter comes with its own set of hurdles. Icy hurdles. Any injuries in the line of duty? I've had several, like, tumbles. One incident, I was off for two months. I thought I broke my ankle. What is the most perilous aspect of the job? Would it be dogs or icy stairs?

In this area, there's a lot of dogs, but I would say the icy stairs. Do you think that if Canadians see this service gutted at the expense of all of these workers, that it actually could be a politically unpopular problem for whomever is in power, whether it be this liberal government or increasingly likely the conservatives. Right, right. I, again, I think that there is an urban-rural divide on this issue. Large numbers of people in the cities across Canada don't care. I mean, I go in, as part of my research, I go into post offices, postal stations in the city of Ottawa, okay, and in the daytime. It doesn't

matter what time of the day. There's no customers. And so again, what I'm suggesting is that I think it is inaccurate to say there's millions of people in the urban, in the big cities, the cities, who are sitting around pining for the post office. If they were, they would be using it, and they're not. Where the demand is and where I think the deep attachment is is in small-town Canada, rural Canada, remote Canada, where they are still very dependent on the post office, and understandably so. The idea that we're going to be able to save 65,000 workers

in the cities where more and more of us are simply not using the post office day after day, I think is not going to be sustained, especially when people see the deficits. These numbers are not static. In other words, as the numbers, the volumes continue to decline, as they lose more and more market share and parcels, that means that their revenue is going down while their costs is going down while their costs are going up. And therefore, each year that goes by, those deficits are going to become bigger. And I don't think the political support will be there to support what I called in my

Globe and Mail op-ed a Potemkin post office, where we have 65,000 people coming to work and sitting around with nothing to do because letter mails have vanished. And so we're going to have to acknowledge or recognize that reality and restructure the post office for those not serviced by private couriers. And that's going to be the future of the post office. I'm not saying they won't operate in the urban, but they're going to have to become competitive to compete against not only the gigs, but the traditional, the other courier companies, parcel post courier companies in the cities. Okay. Ian Lee, thank you very much for this conversation today. I really appreciate it. My great pleasure. Thank you very much. My great pleasure. Thank you very much.

All right, that is allbc.ca slash podcasts.