Taking Advantage of Regulated Rates

The Globe and Mail today has an article that indicates that Canadian mailers are taking advantage of lower Postal Service rates to mail letters and parcels across Canada.

"For a small but growing number of this country's eBay vendors, the cheapest path across Canada lies through the heart of America.  Canadians are showing up in increasing numbers at U.S. Postal Service outlets with parcels and letters destined for other provinces – and, in at least one case, a neighbouring town."

Later in the article, it is clear why this is happening, the rates for the Postal Service's money-losing Media Mail service are so low, it is worth it for Canadians to drive to the United States to ship books, records, CD's and DVD's.   

“If I didn't ship through the States, I'd probably have to lay all my staff off for sure and just run the store, my wife and I,” said Gary Nerman, whose Nerman's Books and Collectibles in Winnipeg employs three people. “It would probably cut our sales down by 80 per cent, 90 per cent.”

Every week, Mr. Nerman drives an hour south to Pembina, N.D., usually with between 90 and 130 books to ship. The savings are dramatic. In the U.S., a special media rate allows him to ship, say, a Stephen King hardcover to Los Angeles for less than $3. From Canada, it would cost about $10. (It's also substantially cheaper and faster to ship to Europe or Australia, through the U.S.)

Canada Post operates under financial goals and pricing strategies approved by its Board of Directors.  These financial goals have generally prevented Canada Post from offering any service below costs.   I know of only one exception.  This was an unaddressed advertising mail service that was stopped over a decade ago after objections from newspapers and others that delivered unaddressed mail prompted an external review demanded by Parliament that clearly showed that prices were both below cost and a bad business decision.  Since then, Canada Post financial management has has more power to oversee prices proposed by marketing staff to ensure that business is profitable.

The financial returns of Canada Post since the unaddressed product was dropped have been positive.  Recent changes that employ more realistic financial objectives, will ensure that Canada Post remains profitable even as many mailers switch from print to digital delivery. 

The experience with the money losing unaddressed mail profit did not change the minimal price regulation in Canadian Postal Policy.   Canada Post announces price changes on an annual basis with an opportunity for public comment.   There is no regulatory body to check costs or whether prices meet objectives of postal-policy.  More importantly for a product like Media Mail, there is no pricing objective that favors mail based on content, so shipping a book in Canada is priced no different than shipping other parcels.

The volume of mail similar to what the Globe and Mail described is likely small.    But given the Postal Service's operating losses, how long can management, the Postal Regulatory Commission, and Congress allow these pricing aberrations to continue?