How About Some German Efficiency for Canada Post?: Canada should privatize and liberalize its postal sector—just as Germany did

Adrian Vannahme, Commentary, Crown Corporations, Uncategorized

 

As Christmas nears, line-ups at the post office will grow and packages will take longer than usual to reach their destinations. However, even outside of peak periods, customers occasionally grumble that Canada Post is slow, sometimes to the extent of losing mail, its service poor and its prices high. In the past, Canada Post acknowledged it has problems including necessary modernizing in order to work on these complaints. "Most of the facilities are in significant need of upgrading, including the introduction of new technology," said Don Woodley, interim chairman of Canada Post back in September 2007. "It will require very significant capital."  
Yet, since Canada Post is a publicly-funded monopoly, there is reason to doubt it can be reformed to deliver improved service and more competitive prices. However, there is a better way to modernize Canada’s postal system, including on finding capital.
Canada Post’s problems and the difficulties it faces are similar to the ones experienced in Germany in the 1990s. Back the, Germans faced a state monopoly (Deutsche Post) and the problems normally associated with such guaranteed market dominance – limited innovation, poor customer service, below average labour productivity and high letter prices.
But Germany’s postal sector is an example of how liberalization of the postal market and privatization of a monopoly can produce better results.
The move to liberalize Deutsche Post began in the late 1990s under a left-of-centre government coalition, and took effect over one decade. The first step in 2000 was to list Deutsche Post as a publicly traded company on Germany’s stock market. Then, in the lead-up to the liberalization of the market, a regulator for the postal sector was established and placed under government authority. Next, competition was allowed for letters of more than 1,000 grams. Gradually, the weight was reduced until the market for all letters was opened in 2008.
The results of privatization and liberalization were positive: post offices in Germany are open longer, allowing customers greater access to the postal services in a country where retail hours did not extend past normal work hours. Rural areas have seen a significant increase in their service, as postal hours are now as long as those of the grocery stores or pubs which now provide postal services. Business customers also enjoy better service due to higher flexibility by Deutsche Post and its new competitors which provide individualized services for customers.
Germany’s entire postal sector and Deutsche Post in particular had to modernize their structure and operations in order to remain competitive. Mail sorting is now done by machines rather than by hand, requiring less time and money.
 
The result of liberalization and competition has been savings passed on to all customers. Between 1998 and 2008, the inflation-adjusted price of mail fell by 16.3% in Germany—the steepest decline among all European countries surveyed; in comparison, prices rose in 17 European countries in the same period.
 
Fears of those who had opposed the privatization of Deutsche Post and the liberalization of the postal sector were unfounded.
Rather than fewer postal sector jobs, the move led to an increase in employees for even the former monopoly and the postal sector in general. Increased competition led to the modernization of Deutsche Post, which in turn enabled the company to expand into international markets with significant success. Today, Deutsche Post has almost double the number of employees it had in 1990, many of them spread around the globe.
At the same time, the increases in efficiency and competitiveness led to large gains in revenue. Its new German competitors fared equally well. Their success has not come at the expense of service. Regulatory powers retained by the German government ensured that rural and remote areas retained access to mail services at reasonable prices.
Canada Post’s CEO Moya Greene must have some sense of how other countries such as Germany have successfully modernized the postal sector; she was recently quoted as noting, "I'm not a person who has any problem with private ownership of equity. I believe there are lots of great companies out there where shares are held publicly”.
Given the similarities between Canada’s postal sector and Germany’s former state-run postal sector, and in light of Germany’s positive experience with postal sector liberalization, there is no reason why gradual privatization of Canada Post and liberalization of the postal sector in Canada cannot also be a success.