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Postal strike?

Like polyester suits and the Chevy Vega, postal strikes are a 1970s memory that we'd all like to put behind us. It may seem odd to many that the union is going on strike now, essentially to ask either stamp buyers or taxpayers to sweeten their deal.

Like polyester suits and the Chevy Vega, postal strikes are a 1970s memory that we’d all like to put behind us.

It may seem odd to many that the union is going on strike now, essentially to ask either stamp buyers or taxpayers to sweeten their deal. The unemployment rate is 7.6 per cent and still a point and a half higher than before the crisis. The federal government, which owns the post office, expects a $30 billion deficit this year. And the post office’s latest offer had plenty of things a lot of other Canadian workers didn’t get this year: “wage increases, job security, a defined benefit pension, seven weeks of vacation and more,” according to the post office.

The post office also backed away from its earlier plans to change sick leave rules, and to restrict future hires so they wouldn’t have the same pension and vacation benefits as current staff. It says that wages and benefits even for new employees are superior to what competing delivery companies offer.

The job of union leaders has always been to get a good deal for their members. And Canada’s public sector union leaders have done this very well.

But this strike is not your typical labour dispute. The post office strike is an early skirmish in a new kind of battle that is going to get increasingly common in the next decade or two. It involves a government-dominated industry being hit simultaneously by big structural changes and severe demographic challenges.

In past decades, unions and employers battled over who would get a bigger share of a growing pie. Take General Motors in the 1960s and 1970s. Revenues and profits were growing steadily, and shareholders and workers had to figure out how to split the bounty. But things got much more challenging in the last decade, as GM started shrinking and more and more workers retired and started drawing their pensions.

The post office may be in an even worse situation than GM. The internet isn’t going to replace the car, but Canada Post saw mail volumes and revenues fall in 2009 as Canadians switched to e-mail and online statements and greeting cards (2009 is the last year for which their annual report is available). The number of pieces of mail per mailbox fell steadily from 377 in 2005 to 334 in 2009.

Canada Post’s cost problem is also worse than GM’s, since it has such high “fixed costs.” That’s economist-speak for how it costs basically the same to run a post office’s delivery network whether it delivers 11 billion letters or 10 billion. In fact, costs were driven up by Canadians adding almost a million more mailboxes around the country since 2005. The post office has recently been investing to improve efficiency, but noted in its annual report that “the way Canada Post delivers the mail has essentially remained unchanged for decades.”

Canada Post’s profit margin has been in the one to two per cent range for most of the last few years. With a wafer-thin margin like that and fixed costs, it only takes a small decline in revenue to turn a profit into a massive loss.

Now, on top of that, the post office has to support an aging workforce and a growing number of retired workers. Canada Post’s pension obligation is about $14 billion, a big number for a company that has just $2.2 billion in capital assets and operating income that has ranged from $100-400 million in the last few years. The company also expects around 2000 workers to retire per year, and start drawing benefits for the next decade.

The only good news for the union is that, unlike GM, Canada Post has a legal monopoly and the deep pockets of the federal government behind it.

Assuming the internet continues to undermine paper mail, there are only four ways out of the post office’s problems: more efficient operations, higher prices, union concessions or taxpayer bailouts.

The post office already has plans to raise domestic stamp prices faster than the likely rate of inflation for the next few years. And the newly elected Conservative government is not going to be keen on postal subsidies. The union wants more raises, not concessions. Which leaves efficiency.

The post office has recently been investing in more efficient technology and business practices, starting with its Winnipeg operation. For example, Canada Post staff went down to visit North Dakota’s elite posties to learn about their “park-and-loop” method and how they sort the letters into the optimal order for each route. Canada Post also has bought 1175 new ergonomic postal trucks, and has developed the “letterflattainer,” perhaps the world’s best plastic box for letter handling.

Canada Post hopes that all this will help it save $250 million per year by 2017. But changing traditional business practices is tough in any industry, and these kinds of efforts can run into resistance from managers and workers alike. The fact that the union chose to start the strike in Winnipeg where the upgraded technology was installed does not instill confidence. This tension is heightened by the fact that in a business where 64 per cent of the cost is people, and revenues are flat, efficiency often means fewer workers.

Hopefully the postal efficiency program will come in on time and ahead of budget. One worrying thing is that respected Canadian executive Moya Green, who led the post office after senior stints at the federal government, Toronto Dominion and Bombardier, has accepted a new job at the British post office. Deepak Chopra took over earlier this year. He used to be CEO of Pitney Bowes Canada and Latin America. His new job won’t be easy.

We don’t know how this strike will end, but if the union gets all it wants it might end up being a Pyrrhic victory. Every day people read about postal strikes, it’s likely that more people will register for online bank statements, Hallmark e-cards and the no-junk-mail list.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.