A version of this commentary appeared in the Winnipeg Free Press

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Canada Post is looking for a new CEO, but the job comes with significant challenges

THE CANADIAN PRESS/Darryl Dyck

Looking for a new job?  Canada Post is looking for a President and Chief Executive Officer. But it’s not a position anyone should consider lightly.

The new CEO will face daunting challenges managing Canada Post’s operational, financial and governance deficiencies in this digital age, and will have to do so under close public scrutiny and in a deeply politicalized context.

However mundane it might appear, mail delivery is politically significant to the federal government. Mail and parcel service is one of the few tangible things the federal government does which affects the daily lives of the general population. Any problems with mail delivery makes its way swiftly to our elected MPs. Instances of poor customer service or corporate mistakes generate newspaper headlines.

Canada Post is granted — or cursed, depending on how you look at it — with a monopoly on mail service.  The “Universal Service Obligation,” mandated by the federal government, means it must serve all addresses, regardless of the cost of doing so.

As a result, one of Canada Post’s core purposes is to provide mail and package delivery services to rural areas and small towns, places where private firms offer limited service.  These services are subsidized from other components of its operations. Positive revenues from its urban courier and package delivery services, and Purolator Courier, its wholly owned subsidiary, are used to finance its losses serving rural Canada.

So what’s the problem?

Many private-sector logistics firms, not surprisingly, likely resent a public operator taking market share. Many of these firms are well-organized and politically significant, and often seek to stymie Canada Post’s business development plans.

On the operational side, Canada Post also faces major structural challenges. Mail volumes per address are declining somewhere between five and eight per cent annually. Its pension plan is multiple billions of dollars in deficit. And there’s the looming threat that some large online retailers are considering entering the shipping business, cutting out intermediaries.

Then there’s the union.  Historically, Canada Post has experienced many disputes and its labour relations continue to be difficult.

Further, some in the Ottawa civil service have little appreciation for the value of and challenges faced by Crowns Corporations. There is likely little empathy for Canada Post’s problems at its home Public Services and Procurement Canada (PSPC), nor from Treasury Board or Finance Canada. Older civil servants may recall the great success of privatizing Canadian National Railways and some may wish the same for remaining Crowns.

On the governance side, it faces difficulties with its single shareholder. A plan to modernize Canada Post’s delivery system has stalled. Eliminating remaining door-to-door delivery (approximately 1/3 of homes) and installing block mail boxes was kiboshed by the Liberal government to curry political favour with voters. These changes would have reduced costs by approximately $400 million per year and eliminated between 6,000 to 8,000 positions, achievable through attrition given its relatively aged workforce.

The costs of maintaining door-to-door will have to come from somewhere and the federal government will not likely foot the annual bill. Nor can Canada Post borrow the funds to cover these expenditures.  It will have to absorb this specific expense and find the resources within its current operations.

So what could the new CEO do with this hornet’s nest of troubles?  The evolution of Australia Post (AP) offers some important lessons.

Like Canada Post, AP provides service to a small population spread throughout a large land mass and cross-subsidizes its remote services with revenues from its other business lines.

How does it manage?

AP has streamlined its operations and earns additional revenues by offering a diverse number of other services — including financial services. After years of acrimonious labour relations, it has even reached a détente with unionized workers. And it also operates with proportionately fewer employees, meets its capital costs and provides a dividend to the government.

So when looking to chart the path forward, the new Canada Post CEO should look to Australia for answers.

Canada Post’s current situation, in many respects, mirrors challenges faced by all Crown corporations. They must balance divergent, and often conflicting demands from their single owners, amongst other interests. And they must meet stringent commercial and, most critically, politically relevant policy goals which are often in conflict. For the executives who run these firms, they dream of the simplicity that the “maximizing profit” goal provides their private sector counterparts.

Canada Post’s new CEO will need sharp political, business and diplomatic skills to steer it towards a sustainable future.

 

Malcolm G. Bird teaches political science at the University of Winnipeg and a Contributor with EvidenceNetwork.ca.

July 2018

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