Canada Post Loses Junk Mail

Like most small-town newspaper publishers, Marie David depends on Canada Post for her survival. Without the post office, she could not afford to deliver her newspapers, The Hanover Post and several free circulation weeklies, to readers in Ontario's Grey and Bruce counties. Over the past decade, however, David and many of her counterparts across the country have found themselves competing with Canada Post for the right to deliver advertising flyers published by supermarkets, department stores and retail chains. More often than not, says David, the Crown corporation captured the flyer business by charging retailers less than it cost to deliver them, or by distributing flyers on weekends while refusing to offer her the same service. "We never had an opportunity to get the business because of Canada Post," said David. "It was unfair competition."

Keywords

Economics

Those days are over. Last week, Diane Marleau, the minister in charge of the post office, ordered Canada Post to stop delivering advertising flyers, also known as junk mail, in response to a sweeping report on the Crown corporation prepared by George Radwanski, a Toronto-based public policy consultant and former newspaper editor. However, Marleau delayed a final decision on another key recommendation - getting Canada Post out of the package-delivery business by selling its stake in Purolator Courier. Marleau also extended the moratorium on the closure of rural post offices but flatly rejected Radwanski's proposal to increase first-class postal rates to 50 cents from the current 45 cents. "This government has no desire to add to the financial burden for Canadian taxpayers or businesses through increased costs for postal services," said Marleau.

Radwanski's report provides the first comprehensive review of Canada Post since the Mulroney government instructed the Crown corporation in 1986 to aim for "commercial rates of profitability." Almost every year, Radwanski says, Canada Post management has predicted big profits, and usually failed to deliver - suffering cumulative losses of $400 million since 1986. At the same time, according to Radwanski, the corporation has "engaged in unrestrained competition with the private sector."

After reviewing the hundreds of submissions he received during cross-country hearings that began late in 1995, Radwanski reached a startling conclusion. "I was shocked to discover that there are Canadians, particularly owners of small businesses, who are literally afraid of Canada Post," Radwanski told Maclean's.

Over 100 business owners or executives, primarily from community newspapers and courier companies, complained that the corporation uses its profits from mail delivery to lower the rates charged for handling packages and flyers - a practice known as cross-subsidization. As a result, the Canadian Community Newspapers Association argued, its 669 members were losing up to $450,000 each in yearly revenue because Canada Post delivers most of the retail inserts once carried almost exclusively in newspapers.

After analyzing the corporation's pricing, Radwanski concluded that "Canada Post is an unfair competitor in ways detrimental to private sector companies." But he also noted that the corporation's method of accounting - lumping together rather than separating the costs and revenues associated with various product lines - made it impossible for him to determine how much cross-subsidization was occurring.

In response, Marleau hired outside advisers to answer those questions and to assess the financial impact of removing Canada Post from all non-postal ventures. She also laid down the law, insisting that the Crown corporation's operations "must be conducted under the tenets of fairness, transparency, openness and accountability." But that has not satisfied the country's couriers, who think Canada Post should stick to its core business: delivering the mail.

Maclean's October 21, 1996

Author D'ARCY JENISH

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