Impact of the CPC strike on the Canadian Economy

As noted in an earlier post, mail volume at Canada Post is down 50%.   The decline in demand has affected employment levels all across Canada.  National Association of Major Mail Users President Kathleen Rowe last Thursday stated that the strike has resulted in the layoff of at least 15,000 Canadians.   This is on top of the reduction in employment at Canada Post as it switches to three day delivery in urban areas for the duration of the strike.

The Jobs Impact of Canada Post and the Postal Market and the Strike's Impact

Canada Post is the core of an industry that likely employs between 500,000 and one million Canadians.   As in the United States, Canada Post represents only a small portion of these jobs.   If the mail market in Canada is similar to the United States then jobs generated by the industry are associated with one of the following:

• production and delivery of mail and the delivery of business-to-consumer parcels;
• internal operations at companies that use mail as part of their business but are not in the business of producing or delivery mail or delivering B-2-C parcels; and
• sales of goods or services associated with mail advertising.

Well over 40% of all postal market jobs in Canada most likely come from sales of goods and services advertised by mail, if one assumes that the impact of advertising mail is similar in Canada and the United States.  To the extent alternative advertising modes are less effective, advertisers will be selling fewer products and providing fewer services, thereby reducing employment in the advertiser's businesses.  The impact of the reduction on mail volume on jobs associated with sales of goods or services is unknown but is likely to be noticeable to the firms affected.

To the extent that the Canadian Postal Strike is switching customers from mail bill presentment and payment to electronic alternatives as well as switching customers from using the mail to handle transactions or business or government are switching their payments to electronic or other alternatives, then there will be a loss of jobs in the private sector above and beyond what Ms Rowe reported.  These job losses are permanent as electronic transactions are less labor intensive than paper ones and it is rare that once a person switches to electronic delivery that they switch back.

The 15,000 job losses that Ms. Rowe notes seems relatively low even if they only come from firms that produce mail.    A 50% reduction in mail volume should cut printing runs, paper purchases, ink purchases, etc by nearly that much depending upon what types of mail is eliminated, and the limited opportunities of mailers to use alternative means of delivery.   I would expect that losses in jobs in the mail production supply chain could double or triple her estimate if mail volumes continue at 50% of pre-strike levels for an extended period.

The GDP Impact of Canada Post and the Postal Market and the Strike's Impact

In the United States, the mail market generates over 7% of GDP.  With Canadian GDP in 2010 at $1,232 billion (Canadian dollars), a similar impact would be 86.4 billion Canadian dollars.   Over three quarters of this impact is in the sale of goods and services advertised by mail or delivered to consumers.    The remainder is associated with the production of mail or delivery of consumer parcels.   (The economic impact of mail operations within a company that does not print or distribute mail as a primary business is unknown)

A decline in demand due to the strike affects the Canadian economy in three ways.  First, less effective advertising should have a negative impact on economic activity in those businesses that use mail advertising.  Declines in demand in mail production reduces industrial production and sales in those industries affected.  Finally, loss in jobs and hours among employees in either mail production or among mail advertisers affects sales at firms that depend on these employees as customers.  This affects businesses in every community including national chains like Tim Horton's and the Bay, to local merchants and service providers including dry cleaners, dentists, optometrists and opticians.

The Economic Impact of the Strike and the Press

In most news reporting, reporters have focused on the impact on consumers, the recipients of mail.   The \Canada Post strike will have little economic impact on consumers unless they work for a firm that produces or distributes mail or their employer depends on mail advertising to generate sales or in the case of non-profits, contributions.  It is not surprising that consumers see little impact of the strike.

What the press has missed is the business impact.    This impact is substantial as the National Association of Major Mailers points out even before Canada Post cuts back delivery days.    It may be worth the time and effort of Canadian business journalists to take the time to look at the impact of the mail strike on businesses if they want to understand the real impact of the Canada Post strike on Canada and its economy.

USPS Closing Contract Postal Unit

According to a note on the National Association of Postmasters, US (NAPUS) website, the Postal Service is closing 20 contract units that offer virtually the same services as a Post Office. (i.e. Retail, PO Boxes, etc.)   The note implied that the closures are related to the APWU agreement. These closures raise questions about what the Postal Service's retail strategy is and how labor and contract unit contracts affect that strategy.

Privatization is Not Free

Privatization of the Postal Service has received recent attention in a speech by Governor Tim Pawlenty and the editorial page of the Washington Post.    Neither presentation provided any indication of an understanding regarding what it would take to privatize the Postal Service either legally or financially.

In an earlier post commenting on Governor Pawlenty's speech, I noted that privatization would likely require resolving the retiree issues in the Postal Service's favor. 

Confirmation of that conclusion is coming from Great Britain.  The Financial Times reports that Ed Davey, postal affairs minister, told the Commons that, to put Royal Mail on a sustainable commercial footing, its balance sheet would need to be restructured to “significantly reduce” the company’s £1.7bn debt to the government.


That would be on top of taking over Royal Mail’s £8.4bn pension deficit. Officials said the scale of the capital injection would be determined by talks with the Commission, coupled with the company’s finances and market conditions.    

In total, the British government is expected to forgive debt or take over obligations of around $16 billion U.S.   This is to privatize an enterprise that generates one quarter the revenue of the Postal Service. 

Privatization may be what the Postal Service requires, but before the idea is to taken seriously more work is needed to understand what privatization would require legally and financially.

Is there a Future for the Postal Service in the Digital Age?

The future of the Postal Service is no longer a question for just postal stakeholders.   The default on Postal Service obligations to the Federal Government this fall will create above the fold headlines in national newspapers when it comes shortly after the Federal Government faced either actual or potential default to its obligations due to the inability of Congress to raise the debt ceiling.  

These headlines have already begun in numerous publications that are widely read by the Washington Political elite.  Here are just a few of the headlines that have appeared in the past week.

Business Week:  The U.S. Postal Service Nears Collapse 
Catholic Online: Insolvency looms for United States Postal Service
Daily Caller: Postal reform requires presidential leadership
The Washington Post: USPS reform may be on the way, but is it too late?

All of these headlines indicate that the Postal Service is on a fast track racing toward a ravine where the bridge needs repair or replacement to ensure safe passage across.   Recent statements from the Postal Service's CFO Joe Corbett that mail delivery could stop in the summer of 2012 when the Postal Service runs out of cash, suggests that signals on the bridge indicate that unless something is done it will collapse soon.

The problems facing the Postal Service that could send it over the cliff reflect a combination of legislative, regulatory, management, and market factors. Even if the bridge is fixed, it is clear that the world on the other side will be quite different as in that world, digital communications will replace millions if not billions of print communicaions that the Postal Service now delivers.

The concerns of those whose livelihood depends on print communications for both getting over the revine and surviving the journey beyond are obvious.   But as Politico noted in an article yesterday, the champions of digital communications care as well and will be joining leaders in shaping postal policy in the United States and Europe at Postal Vision 2020 on June 15th to discuss the future of the Postal Service in the digital age.

Politico accurately described Postal Vision 2020 as a brainstorming process focusing on the question:
"How can an anachronistic, paper-based service remake itself in a digital world?"   

Beyond this initial question Postal Vision 2020 will raise additional questions:

• What new technologies will challenge current preferences among digital, mobile, and print communications?
• What roadblocks, including communications security, customer acceptance, and technical compatibility, could affect these preferences and the speed that senders choose digital or mobile options?
• What are the inherently governmental functions in the delivery of print, digital, and mobile communications and parcel delivery?
• Are there characteristics of the print delivery services offered by the Postal Service that would affect the switch to digital communications if digital communications options had similar characteristics?
• What challenges exist in the transition toward digital communications in all demographic, and geographic segments of the United States?
• In a world that finds any communications that can be digital being sent in a digital form, what will the role for print communications be and how will private sector firms in the print communications business make the transition?
• What role should current governmental institutions, including the Postal Service play in a digital transition?
• Can the Postal Service make the transition as a government institution under the current business model or one that is similar in a manner that ensures its self sufficiency?
• Does the Postal Service require private sector investors, and even possibly privatization as suggested by the Washington Post and Daily Caller pieces in order to make the transition?

These and other questions are critical to Congress, postal stakeholders, and digital communicators.  It is why Postal Vision 2020, which will occur on June 15, 2011 at the Cristal Gateway Marriott in Arlington, VA only has a limited number of seats still available.   If you have thought about going, you need to send your registration forms in quickly.   The following are links to the registration forms that can be e-mailed or faxed in.

PDF Registration Form

Microsoft Word Registration Form
  

Canada Post Strike: a Lose - Lose Proposition for CUPW

For over a week, the Canadian Union of Postal Workers (CUPW)have struck Canada Post in a series of rotating strikes that affects Canadian cities on nearly a random basis.    The impact of the strike is clear and it is not good for either CUPW members or Canada Post customers. 

According to Canada Post, daily mail volume is down 50%.   In response Canada Post has cut delivery to three days per week in urban areas. CUPW employees not on strike find their work hours curtailed to match the lower mail volume and reduced delivery schedule.

In authorizing a strike, CUPW members clearly believed that Canada Post's offer was a losing proposition for them.   Like postal workers in many countries, they saw that long standing benefits and regular pay increases were threatened with new approaches to benefits and less certain pay increases.  They also saw major changes in their work environment and Canada Post introduces sortation to carrier route sequence as well as other changes designed to reduce costs, with cost reductions not going to wages and benefits but going to earnings and lower or stable rates for customers.  

Unfortunately for CUPW employees, the result of authorizing the strike is also a lose proposition.   Following the strike, CUPW members will likely work for a greatly weakened Canada Post.  Mail volume that switched to electronic alternatives will not likely return to a printed form that CUPW members sort and deliver.    Parcels shipments that were handled by CUPW members that switched to Canpar, DHL/Loomis, FedEx, Purolator, or UPS will be tough to get back as shippers in the important B-2-C market find that other carriers can do the job as well as Canada Post.  

Without a return to pre-strike volume levels, Canada Post will likely accelerate its modernization efforts, and combined with its regular efforts to optimize staffing levels and delivery routes, will likely employ fewer employees than it planned if a strike had not occurred.

Right now it is unclear, how the current impasse can end.   The longer it goes on, the weaker Canada Post becomes, but it is unclear whether a weaker Canada Post will be more willing to agree to union demands.   In fact, an argument could be made that a weaker Canada Post could become even more reluctant to change its position and may even request even greater changes in wages, benefits, and working conditions than was in its original offer.

One idea that is not on the table that could help resolve the impasse, would be some form or employee ownership of Canada Post in return for the changes that Canada Post management wants.   This ownership, whether in the form of voting or non-voting shares would give employees a share of the benefits of the contract changes as owners that Canada would be highly reluctant to grant them as employees.   This would be a major change in Canada Post's governance but one that the CUPW and Canada Post should think about if they want to ensure a vibrant Canada Post in 2020 and beyond.

Historical Analogy:   In 1997, the Teamsters went on strike against UPS for 15 days.   At the end of the strike, UPS acceded to many of the Teamsters demands as the long-term impact of business was clear.   (A PBS interviews with representatives from the Teamsters and UPS provides a perspective on each side's position following the strike's end.)

The strike showed UPS customers, which at that time represented nearly 90% of all parcel shippers, that a quality alternative existed, RPS (now FedEx Ground).   Customers who during the strike were able to switch, stayed with RPS.  Nearly every quarter since the strike,  RPS/FedEx Ground has taken market share away.  

In subsequent agreements, the Teamsters did agree with most of the changes UPS wanted including withdrawal from the Central States multiemployer pension plan, and lower wages for new part-time workers. 

The Teamsters now face the challenge of negotiating with UPS that is no longer a near monopolist in the parcel market.  These negotiations require that contract terms recognize implicitly the impact of competition from a non-union FedEx, the Postal Service, and numerous non-union smaller regional parcel carriers.

Note for American Readers:  One wonders how the agreements between the Postal Service and APWU and other unions would differ under labor law similar to what Canada Post operates under.   (This is law somewhat similar to the Railway Labor Act.)   Also given that single-piece mail is declining at around 10% year-to-year, how would a strike increase that decline especially since a large percentage of single-piece mail is bill payments?

Tim Pawlenty: Does He Want to Shut the Postal Service Down?

In his use of the Google test, Governor Pawlenty stated that "If you can find a good or service on the Internet, then the federal government probably doesn't need to be doing it."   Is it possible that he wants to end the Postal Service as the headline writer for the Atlantic Wire wrote?

The writer of NBC' News' First Read column asked the question:  "Does Pawlenty realize that UPS and Fed Ex don’t deliver to some rural parts of the country? How do you ensure mail for those folks? The real issue with the Postal Service is Congress' inability to allow it to make smart business decisions (like raising postage to a realistic level of say one whole dollar?!?!? Or shutting down some post offices). "

The question is critical as the Postal Service does provide services that the private sector does not.   While contrary to the premise posited by NBC news, UPS and FedEx will deliver to every address in every zip-code in the United States and will make those deliveries according to service standards listed on their website, parcel shippers in the 1,120 most rural counties in the United States where over 13 million people live will be hard pressed to find a FedEx or UPS outlet within 25 miles, while they will likely find at least four Post Office locations within 25 miles.  (In some of these most rural counties, there are 20 or more locations within 25 miles.)

In addition, UPS and FedEx price their delivery of lighter weight parcels to shift demand to services that require the Postal Service to make the delivery, either as the carrier that handles the parcel from origin to destination, or the carrier that just handles the last mile.   Combining volumes handled by the private sector air and ground delivery services and First Class parcels and consolidator parcels under 1 pounds, the following table illustrates that the Postal Service delivers most of this volume.  It should be noted that fully 33% of all one pound parcels, or 3/7 of what the Postal Service delivers is picked up from the shipper from UPS/FedEx or another carrier and then deposited in the mail stream for delivery.

While the Postal Service generates most of the volume in light weight parcels, private sector carriers generate over half of the revenue as delivery by FedEx Express, UPS Air, FedEx Ground, or UPS Ground is much more expensive than the end-to-end delivery service offered by the Postal Service or the joint line or consolidator-USPS service  where revenue is usually split close to 50-50.

Not withstanding these facts, and similar ones that could be raised about the handling of financial transactions, print advertising, and periodicals, Governor Pawlenty has more-or-less doubled down on his Google test.

 In response to a question from First Read, a Pawlenty spokesman emailed, “The Google Test highlights government programs and parts of government programs that are clearly duplicative of services now also provided by private sector.”

The Postal Service offers services that compete with the private sector in parcel delivery, transaction handling (e-bill and e-billpay), and advertising as well as other services.  The fact that it competes with private sector does not mean that the services are duplicative and warrant shutting it down.  Even though there are private sector substitutes, for many forms of communication, as well as many parcel customers, there is no direct substitute at a comparable price.   Shutting down the Postal Service would threaten the entire postal market that generates over $1.1 billion in sales in the United States and employs over 6.6 million people while shippers and mailers waited until the private sector alternatives formed.  Maybe a Republican in the mailing community should spend some time with Governor Pawlenty's staff to make it clear that tht he needs to make it clear that shutting down the Postal Service is a bad idea.

The Google Test: Does the Postal Service Pass?

Today Governor Pawlenty in a speech announcing his economic plan, suggested that the Postal Service passed the Google Test since a competitive alternative could be found by searching Google. 

"There are some obvious targets. We can start by applying what I call 'The Google Test.' If you can find a good or service on the Internet, then the federal government probably doesn't need to be doing it. The post office, the government printing office, Amtrak, Fannie and Freddie, were all built for a time in our country when the private sector did not adequately provide those products. That's no longer the case."

Just for the fun of it, what could be eliminated according to the Google test:

• The Postal Service should no longer handle transaction mail since on-line alternatives exist.
• The Postal Service should get out of the business of delivering periodicals as private sector firms do that in many urban areas.
• The Postal Service should no longer deliver parcels including nearly 30% of FedEx Ground shipments and most shipments under 2 pounds as FedEx and UPS deliver parcels.
• The Postal Service should not deliver saturation mail as private sector firms do this now in many metropolitan area and could do the same in more.
• The Postal Service should no onger offer retail parcel, money order or mailbox services since they are offered by the private sector.
• The Postal Service should no longer deliver advertising as there are numerous other modes for advertising advertised on Google including Google.

I could go on, but it just gets silly.  

Privatization is a legitimate option.  However, the Google test illustrates ignorance about the mail market, the customers that it serves and the economic impact of the Postal Service.  The net result is that the Google test deligitimizes the privatization option, and reduces the credibility of Governor Pawlenty's economic plan..