The case against cutting costs at Canada Post

Canada Post is already efficient compared with postal services in other countries. More cuts will only lead to managed decline

Canada Post’s financial crisis is often blamed on a costly and outdated pre-digital delivery model. According to this analysis, declining letter mail volumes have made the public postal service wasteful and inefficient, and aggressive cost-cutting is the only responsible solution.

But a look at the numbers tells a different story.

When Canada Post is compared with postal services in other high-income countries, it emerges not as an expensive outlier but as one of the most cost-effective systems. And when we look at what has happened elsewhere, we find that cutting spending on postal services is not a path to financial sustainability. Instead, it is a recipe for long-term decline.

International comparisons are revealing. We looked at designated postal operators with some form of universal service obligation—a requirement to deliver mail to all addresses in a country at a uniform price, regardless of how remote the location—in 20 peer countries, including Canada, and compared operating costs on a fair, population-adjusted basis. In 2023, the average postal service in this group spent about $252 per resident per year, or about 70 cents per person for each day of the year. Canada Post spent just $198 per person, or 54 cents per person per day.

That means Canada Post’s operating costs were roughly 22 per cent lower than the average among peers despite the enormous challenge of serving a sparsely populated country spread across one of the world’s largest land masses. Far from being wasteful, Canada Post is already doing more with less.

The same picture emerged when we looked at costs per item mailed. Adjusting operating costs for the total number of domestic letters and parcels handled showed that Canada Post spends about $1.23 per item. Among comparable countries, the average was $2.36 per item, or nearly double Canada Post’s per-item costs.

This certainly deflates the common assertion that Canada Post is “too expensive” to operate because of an “outdated delivery model.”

In fact, these numbers challenge the claim that Canada Post’s financial problems stem from excessive spending. The truth is, there is little fat left to cut without damaging the core service Canadians rely on.

More importantly, international experience shows that cost-cutting often backfires. According to research by the Universal Postal Union (UPU), the UN agency that supports postal systems globally, the key to success for modern postal services is diversification of services while preserving the integrity of the core postal network.

The UPU’s study concluded that postal services which responded to falling letter volumes by closing offices to cut costs had greatly reduced revenue performance compared to those that diversified but maintained their networks.

Indeed, closing post offices and reducing service may lower costs in the short term but it also drives customers away and diminishes the revenue base needed to stabilize finances over time. To the extent that mail and parcels share the same universal network, cuts to mail services could hamper efforts to pivot to parcel delivery.

Our analysis supports those findings through our tracking of changes in inflation-adjusted operating costs and revenue, again related to mail and parcels only, among Canada Post’s peer group over the last decade.

We found that most operators in the group engaged in aggressive cost-cutting yet were worse off financially due to poor revenue performance. Among the cost-cutting services, for every $100 in spending saved, roughly $124 in revenue was lost. There were no operators in the peer group that succeeded in cutting their way to profitability on core services.

On the other hand, the few operators that succeeded in growing their revenue in that time—in Australia, Ireland, New Zealand, Sweden and Switzerland—all had also increased their spending, with mixed results on overall financial performance.

All of this offers a lesson to Canada Post: there is no pathway to prosperity by cutting services, only a route of managed decline.

Instead of cuts that jeopardize the integrity of Canada’s postal network, we should be discussing necessary investments in Canada Post for it to diversify and expand its business, exploring options in sectors like banking, insurance, logistics or telecommunications.

Beyond that, there is ample opportunity to leverage the nationwide infrastructure of the postal network to provide new and better public services to Canadians.

Ryan Romard is a data analyst and researcher with the Canadian Centre for Policy Alternatives based in Ontario.