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Canada Post’s 19th century monopoly doesn’t fly in the 21st century

Want to understand what's wrong with Canada Post and how to fix it? Let's consider the following tale from science fiction.

Imagine for a moment an alternative universe Canada, where a few things are different from our world. In this Canada, there is a government-owned airline, Dominion Air, which holds a legal monopoly on basic air travel. It's the only airline allowed to carry economy-class passengers. But along with the monopoly, the government of alternative universe Canada has also imposed a series of service obligations on Dominion. These rules would be illogical in any other business, but everyone for some reason finds them to be normal and acceptable in air travel.

By law, Dominion Air must charge exactly the same price for all economy-class seats, regardless of a flight's origin, destination or distance travelled. Whether you're flying from Toronto to Montreal or Whitehorse to Fredericton, the price is the same. This is known as the uniform rate guarantee. It's sacrosanct. Dominion Air is also obliged to operate many small and rural airports, and it isn't allowed to outsource or franchise these facilities. The government sees universal access to one-price-fits-all, economy-class airline tickets as a public service.

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To protect Dominion Air's monopoly, the law in alternative universe Canada says that any competitor must charge at least three times Dominion's economy seat price. However, despite this restriction, alternative universe Canada has many other airlines, ranging from tiny operators to multi-billion-dollar multinationals.

These private airlines charge more than the Dominion Air economy-class fare, but they will get you to your destination much faster. By law, Dominion Air's short-haul flights are supposed to last no more than two days, and it's supposed to carry a passenger across the country in four days or less – it's all spelled out in the airline's charter of service, which the government wrote. The competitors, in contrast, guarantee same-day and overnight delivery. Dominion Air also offers faster flights, but like its competitors, it charges higher fares for those.

Both Dominion Air and the private airlines also carry a lot of cargo. Thanks to the Internet and online shopping, moving packages is the fastest growing business for the airlines of alternative universe Canada. Here too, Dominion Air and the other carriers are allowed to compete directly on price and service.

Overall, Dominion is barely operating in the black, and all projections say that, absent big changes, it will soon be deeply unprofitable. But the problem isn't competition. It's the airline's traditional, monopoly business that's failing.

Dominion Air loses money hand over fist on one-price-to-everywhere economy travel, despite the monopoly, and is doomed to start losing far more. But despite intense competition in high-speed flights and cargo, Dominion Air is growing and turning a profit in these areas.

It's a paradox. The parts of the business that are protected by government but severely burdened by it are bleeding red ink. The parts of the business that are exposed to competition are growing.

If you were faced with a problem like Dominion Air, what would you do? You are. It's called Canada Post.

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The post office has a legal monopoly on the delivery of mail, and competitors must charge at least three times Canada Post's regular rate. Yet the invention of the Internet, leading to a steady and entirely desirable drop in the volume of plain vanilla mail, combined with various costly impositions the government has placed on mail service, means that Canada Post can no longer turn a profit on the business it was ostensibly created to provide.

But in lines of business where customer demand is growing, Canada Post is making money, even though it must go head-to-head with competitors. Its courier services are profitable. So is its parcel delivery business, which thanks to online shopping is booming. Meanwhile, the business of regular letter-mail, where Canada Post is simultaneously coddled and strangled by government, is shrinking fast.

In its most recent annual report, Canada Post describes 2016 as "another crucial year in transforming the business from a mail-centric model to a parcel-centric business." It is trying to ditch the cozy monopoly for a competitive market.

Delivering mail is viable – but not under the terms government has long imposed. According to the Canada Postal Service Charter, Canada Post must "charge uniform postage rates for letters of similar size and weight, so that letters to Canadian addresses will require the same postage, regardless of the distance to reach the recipient." And it must deliver mail "five days a week to every Canadian address."

And since 1994, Canada Post hasn't been allowed to close a rural post office, or convert one into a private, franchised operation. Why? Because "the provision of postal services to rural regions of the country is an integral part of Canada Post's universal service."

At the same time, however, the post office has been ordered to turn a profit, like the normal business government refuses to allow it to be.

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The government has consistently acted as if Canada Post is an essential service, and that it needs the one-price-regardless-of-destination standard, while simultaneously insisting that the post office make money. Those two objectives are increasingly irreconcilable.

To attempt to reconcile them, Canada Post management cooks up increasingly convoluted solutions. It's why, despite the Canada-Post-must-deliver-to-every-address guarantee, millions of Canadians haven't had home delivery in years, and millions more are threatened with its loss.

Canada Post's management is not the problem. The government of the day, whether Conservative or Liberal, and its fear of voters, particularly rural voters, is.

The monopoly and its burdens have to go. If government wants to subsidize service to and within a small number of remote and rural communities, do that up front and transparently. Beyond that, get government out of this business already. Don't ground Dominion Air. Set it free.

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