To address its growing DB pension deficit, the ailing Canada Post needs to gradually contract out more of its services, according to an e-brief by the C.D. Howe Institute.

Pension shortfalls are one major reason why the Crown corporation is in bad shape. In 2012, its pension deficit ballooned to $5.9 billion—compared with $4.7 billion in 2011, according to figures from The Conference Board of Canada.

Under pension solvency rules, the corporation would have had to come up with an aggregate $2.4 billion in special payments by this year in order to cover the gap. But as a result of a special federal permission, it paid only $63 million in 2011 and $219 million in 2012.

This is not a sustainable strategy for the future, though, says Benjamin Dachis, author of the e-brief, which is called “How Ottawa Can Deliver a Reformed Canada Post.” Instead, first and foremost, “we need to make sure this [deficit] doesn’t get bigger,” he adds.

The way the corporation can do that is by gradually contracting out more of its services while retaining a core Canada Post, so it wouldn’t be responsible for the pension plans of future employees, Dachis explains.

“We can still have the government set the parameters of delivery and pickup, but we can have the competition provide these services,” he says.

Canada Post already contracts out the operation of postal outlets, customer care centres, and air and long distance transportation.

The fact that almost half of Canada Post’s workforce is set to retire by 2021 makes contracting all the more necessary, Dachis says.

Contracting would also improve Canada Post’s services because it “would create a strong incentive for contracted employers and their employees to maximize their productivity” so they can retain their contracts, the report argues.

Additionally, the introduction of contracting arrangements would eliminate the need for big-scale layoffs and alleviate losses stemming from all other areas, such as door-to-door service, rural delivery and declining mail volumes, the e-brief notes.

In 2011, Canada Post’s overall expenses exceeded revenues of about $7.5 billion by $188 million, according Conference Board figures. The corporation has not given its owner, the federal government, a dividend since 2008.

So if Canada Post doesn’t enact reforms, it is expected to see a yearly operating deficit of $1 billion by 2020, according to The Conference Board.

Copyright © 2020 Transcontinental Media G.P. Originally published on benefitscanada.com

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sherry Desjardins:

Why is the CEO and all upper management still getting big and I mean big bonuses if we are in such bad shape? Why is Canada Post spending millions on the modern post if we are in such bad shape?

Saturday, August 10 at 9:43 am | Reply

Denny:

It was not that long ago that Canada Post brought its former rural and suburban delivery contractors, about 8,000 of them, in as employees — about 11 years ago. This was done to stem complaints that these people did not meet the normal test of being a contractor in that their work was prescribed, right down to the hours they needed to work.

So, this is not a new idea, it’s a recycled idea. And, one that does not meet the labour department’s rules.

It would be a lot more useful if “brain tanks” like the C.D. Howe Institute looked into the more difficult things, like how to reduce the Canada Post overhead in these days of declining volumes. That is a tougher nut to crack, but maybe more lucrative as Canada Post has a large overhead cost.

Wednesday, August 14 at 6:04 pm | Reply

Lee:

Canada Post lets companies bid on Transportation contracts and then lets them sub-contract to owner-operators while these main contractors typically take 20% off the top, which is really closer to getting 50% of the money because the main contractors don’t have the expenses of buying, maintaining, insuring and fueling the vehicles and they are not out there driving the highways, lifting and sorting tons of mail/parcels each day.

These companies can and do underbid owner/operators to get the contracts, it is not as critical to them to have higher contract prices, their costs are small and they still get 20% for doing next to nothing.

On top of the above, the sub-contractors have no pensions, no free health care, no sick pay, no paid vacations or eye care as union employees do.

The 20% of the money the main contractors take should be income for the sub-contractors to pay for the large costs of owning and running the vehicles as well as to put money aside for their retirement, as it stands now sub-contractors can look forward to a retirement of poverty and misery.

The government of Canada is allowing a new poverty class of sub-contractors to become the standard of what Canada now stands for, while main contractors, government employees and politicians laugh all the way to the bank.

Sunday, December 15 at 7:58 am | Reply

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