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In 2006, Canada Post delivered roughly five billion pieces of domestic letter mail, which has dropped to four billion in 2012. (Sean Kilpatrick/THE CANADIAN PRESS)
In 2006, Canada Post delivered roughly five billion pieces of domestic letter mail, which has dropped to four billion in 2012. (Sean Kilpatrick/THE CANADIAN PRESS)

Evershed and Bourque

Right direction, wrong goal: Groom Canada Post for privatization Add to ...

While the recent five-point plan released by Canada Post is a step in the right direction, its timelines are unambitious and its ultimate goal underachieving. Rather than accomplishing mere sustainability in half a decade, the goal should be turning a Crown Corporation into a profitable going concern that investors would want to invest in, that employees would be proud to work for, and that Canadians would see as a national success by 2016/17.

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Canadians and Canadian policy makers have been down this road before. CN was privatized and has become a global leader, as has Petro-Canada under Suncor. It is clear that the public policy imperative for a massive mail monopoly is rapidly disappearing as the industry changes forever. But international examples show that important public policy objectives can be achieved effectively by a regulated privatized provider that is free to innovate and provide the best service possible at a profit.

Much attention has been given to the recent privatization of the Royal Mail in the U.K. – particularly the embarrassment the coalition government and its bankers have experienced as the value of the equity has risen to as high as 70 per cent of the flotation price. The government is accused of giving the asset away, though critics forget the government still maintains a significant stake. News that the Royal Mail has doubled its operating profit has only fuelled accusation that the Royal Mail was sold too cheaply. Canadians and Canadian policy makers should wish they faced these sorts of challenges in regards to Canada Post rather than the current plan to stabilize the organization by the start of the next decade.

The Royal Mail, as any traditional letter carrier should, realized it was in the same position as Canada Post in 2008. An independent panel concluded that to save the Royal Mail and the worthy public policy goal of universal postal service, modernization and the injection of private sector capital was the best way forward. Like Canada Post, Royal Mail was facing immense modernization costs, labour challenges, and a massive pension deficit. But most importantly, the Royal Mail recognized that its traditional industry was undergoing radical change and that a service founded under King Henry VIII could no longer use its monopoly power to fund a large bureaucracy. The value of the monopoly was evaporating.

The Royal Mail underwent radical reform and prepared itself for privatization. The British approached started with determining core public policy goals that would still need to be maintained. The closure of Post Office retail outlets was of major concern, especially in rural areas, as universal access and service were deemed essential. Accordingly, the branch network was hived off and retained within government. Only the letter carrier functions were privatized. The government empowered an independent regulator through statute, Ofcom, to ensure service standards, universal access, regulated price increases, and services for the blind, members of parliament and the armed forces. The pension liability was absorbed by the government as no private sector entity could survive with such a burden on its books. As was expected, thousands lost their jobs as the organization prepared to become competitive and match the performance of privatized entities in Belgium, Austria, and Germany.

The rate of industry change is staggering. In 2006, Canada Post delivered roughly five billion pieces of domestic letter mail, which has dropped to four billion in 2012, with 30 per cent of that drop occurring in the last year alone. The new Canada Post plan, which envisions a stately process of reform over five years, does not go far enough. While Canada Post is not without major obstacles that need to be addressed – namely labour costs and pension reform – the business is also a distribution powerhouse and if properly managed could be a Canadian corporate success story. A full restructuring and move to privatization of the universal mail mandate, with an independent regulator that enforces detailed service requirement, can provide profitable and best in class services (including home delivery services). Such a move would also provide Canada Post with the chance to become a nimble organization with a future. There is still value to be extracted from the mail monopoly, but it must be done quickly and innovatively.

To save universal mail, it needs to be radically reformed. Only private sector rigour and flexibility can accomplish this as the mail monopoly losses its value. This approach has been tried and proven successful in several European jurisdictions. The Canada Post plan is a step in the right direction, but does not go nearly far enough. More than a century of public investment has built up a still valuable enterprise that should not be squandered. The goal of sustainability does not serve this countries citizens or economy well.

Phil Evershed is the global head of Investment Banking at Canaccord Genuity and was the chief of staff to the deputy prime minister of Canada; John-Christian Bourque is a senior consultant with the management consulting firm StrategyCorp and is a lecturer at the Rotman School of Management

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