Liberals face tough choices on Canada Post
Is postal delivery a social service that requires taxpayer subsidies to function? Or should Canada Post operate as a self-sufficient business? Ottawa must decide.

TheStar.com
Sept. 6, 2016
R. Michael Warren

The threat of a postal strike is over. Canadian taxpayers are the clear losers.

Canada Post, pressured by its sole shareholder the Government of Canada, had to abandon critical cost saving proposals in exchange for a two-year “peace treaty.”

The labour minister called it a “voluntary” victory for free collective bargaining. I’m not so sure.

The Canadian Union of Postal Employees (CUPW) blocked any changes to the expensive defined pension plan for new hires. They will get improved dental and medical benefits and receive modest wage increases. The rural-urban pay equity issue will be reviewed by a third party.

The agreement buys the government time for their postal review process. But it also means Canada Post will sink further into financial insolvency.

Like the Harper government, the Liberals are kicking the postal can down the road in search of a sunny political solution – one that no longer exists.

In 2008 Canada Post was worth about $1.5 billion. It was debt-free, delivered a pre-tax profit of $160 million and its pension plan was fully funded. CEO Moya Green, a Harper appointee, pressed for gradual privatization. The Conservatives backed away.

By 2013 Canada Post was losing money, had $1 billion in corporate debt and accumulated $6.5 billion in pension plan underfunding – all guaranteed by the Canadian taxpayer. The corporation was bankrupt with liabilities exceeding assets.

A private corporation would’ve been forced to seek bankruptcy protection. But the Harper government ducked the problem. It gave CPC four years of relief (until next year) to make up its growing pension deficit. That delayed but doesn’t reduce the obligation.

The underfunding of Canada Post’s pension plan has grown much faster than the corporation’s profits. It’s now a staggering $8.1 billion. The corporation’s overall liabilities now top $11 billion with assets of only $8 billion.

Since 2008 Canadian taxpayers have lost $4.4 billion in the market value of Canada Post. Taxpayers are on the hook for nearly $3 billion in net liabilities.

During negotiations CUPW argued that Canada Post is profitable and could afford their demands. Several years ago CPC mounted a “Five Point Action Plan.” They increased postal rates, cut home delivery, and eliminated staff through attrition. The result has been a temporary return to modest profits.

Second quarter results show an operating profit of $45 million. This represents a return on sales of less than 2 per cent. Not nearly enough to offset the corporation’s growing liabilities.

During the election the Liberals naively promised Canada Post would be required to “provide high-quality service, at reasonable prices, to Canadians no matter where they live.” There was no mention of CPC being required to be profitable.

Last fall, the Liberals halted the corporation’s conversion of home delivery to community mailboxes. The initiative was saving the Crown corporation $200 million a year.

A postal Task Force was established to “identify viable options for the delivery of quality and affordable postal services.” Again, no mention of Canada Post’s financial self-sufficiency.

The corporation’s management found it impossible to stay the course on cost-cutting in the negotiations when their own shareholder seemed oblivious to the financial consequences of their promises.

Online alternatives are driving letter mail and direct marketing towards extinction. The parcel business is growing. But not enough to compensate.

CPC’s workforce already enjoys wages and fringe benefits that far exceed those in competing businesses. This tentative agreement reinforces this disadvantage.

The growing underfunding of CPC’s pension plan is a financial obligation that can’t be delayed indefinitely. Any move by the government to absorb Canada Post’s liabilities would means transferring them onto the shoulders of federal taxpayers.

Current profits will likely turn into losses without the community mailbox savings and with the added cost of the tentative agreement.

It’s doubtful whether CUPW’s push for a postal banking role would solve anything. Banking is a competitive business. CPC’s high labour costs would be a millstone. Traditional banks and emerging fin-banks are offering extensive online banking services to Canadians wherever they live.

The government has two basic choices. Allow Canada Post to make the tough, politically unpopular business decisions required to operate as a financially self-sufficient public enterprise. Or, let CPC revert to pre-incorporation days when the Post Office was seen as a social service that requires taxpayer subsidies to function.

Either way the Liberals are between a rock and a very hard place.