Economist delivers potential solutions to Canada Post’s troubles in new study

A new study is delivering some potential solutions to Canada Post's woes, including a recommendation that postage rates should be higher in rural areas than urban ones.

CALGARY — A new study is delivering some potential solutions to Canada Post’s woes, including a recommendation that postage rates should be higher in rural areas than urban ones.

The paper by the School of Public Policy at the University of Calgary paints a grim picture for the Crown corporation under the status quo: the number of letters delivered dropped by nearly a quarter between 2006 and 2013 and is expected to keep falling. The rise in parcels sent to online shoppers hasn’t been enough to offset the decline.

Meanwhile, the number of addresses in Canada is rising by nearly a quarter million a year.

Canada Post charges the same prices to all customers, even though delivery in urban areas is cheapest.

Philippe De Donder, the study’s author, said that results in “cross subsidies” — urban households essentially shouldering the cost delivering to rural areas.

“We think that for a market to work well, you need to have prices which are in line with the cost of production,” said De Donder, who is with the Toulouse School of Economics in France and has researched postal systems elsewhere in the world.

“And so if you sell different products and one product costs twice as much, there is no reason why the price of this product should be the same. The price should be twice as much as the other product.”

Although De Donder said Canada Post should have more power over pricing, he’s not advocating for unfettered freedom either. He said there should be an independent regulator to impose caps on prices, so that the cost to consumers doesn’t get so out of hand that they stop using the mail service.

As for how well that proposal would go over in rural Canada, De Donder said sees two scenarios unfolding.

One is that people who choose to live in less populated parts of the country accept that they should bear some of the additional costs for mail delivery. Or, the government can make those customers whole through tax rebates or some other mechanism.

“This way, it’s very, very transparent. What economists don’t like about playing with prices to redistribute is it’s totally not transparent at all,” said De Donder.

De Donder said that while immediate privatization to Canada’s postal service may not be the solution, he recommends introducing more free-market competition in the sorting and transportation of mail.

In 2013, Canada Post announced plans to phase out door-to-door delivery in a bid to cut costs and install community mailboxes instead. Shortly after taking power in October, the Liberal government put that process on hold, meaning some households have seen their service unchanged while others have made the switch.

In his paper, De Donder said one scenario could be an extra fee for door-to-door service.

“One could imagine offering a menu of contracts to recipients, with a higher price (in the form of a yearly membership fee, for instance) for door-to-door delivery, and a lower (or nil) price for delivery to community mailboxes.”

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