Why Is Shipping in Canada So Expensive?

If you’ve ever shipped anything in Canada, you’ve probably had sticker shock when you’ve realized that shipping your package might cost more than its contents. Shipping within the U.S., however, is considerably more affordable. So why is shipping in Canada so expensive?

Key Takeaways

• Canada’s vast geography makes shipping across the country difficult
• Canada’s low population density means that companies cannot leverage economics of scale to create savings for their customers
• Canada Post has to provide universal service and therefore has to maintain many unprofitable mailing routes
• Smaller shipping companies like Chit Chats can offer cheaper rates by focusing on profitable routes and leveraging USPS.

Too Much Geography: Density and Economics of Scale

The primary reason that Canadian postage costs so much is simple: Canada doesn’t have enough people and they’re too far apart.

Canada is the second largest country in the world and it touches three different oceans. That means transporting shipments across it is expensive in terms of fuel and labour. And much of the country is in the frozen north, including places like Iqaluit which can’t be accessed by road or rail. Shipping there is often going to be hampered by bad weather and bad driving conditions. All this makes shipping across the country, and to those regions in particular, expensive.

But the U.S. is also a very large country and has cold places like Alaska. So why is it still cheaper to ship from LA to New York than from Vancouver to Toronto? This is where economies of scale come in.

If some countries have too much history, we have too much geography

Former Prime Minister William Lyon Mackenzie King

Economies of Scale

Having a large volume of customers on a shipping route makes it easier for shipping companies to batch shipments when shipping between warehouses. In addition, in a denser population there are more destinations per delivery route, which reduces the cost of each individual shipment. A shipping company can therefore use the same delivery truck to ship twice the number of packages on the equivalent route. In short, having a large and dense population makes it way easier to create economies of scale. This reduces costs for shipping companies who can pass this on—in the form of cheaper postage—to their clients.

Canada has a population density of about 4 people/km² compared to the 33 people/km² in the U.S.. This translates into immense economies of scale that USPS can use, but no shipping company in Canada can use. This isn’t a Canada Post problem! Any shipping company in Canada will run into the same issues because of this low density.

Canada Is Not Densely Populated

You might be thinking: is it really that bad? Most Canadians live in cities and a few kilometres from the U.S. border. The population density in those regions must be comparable once we leave out the territories and Nunavut. Unfortunately, this is not the case.

California alone has a population greater than that of Canada. On top of that, it’s shoved into a space less than half the size of Ontario. Even the most dense province in Canada (PEI) has a lower population density than the US average. The most dense province with more than 1 million people (Ontario) is less dense than 39 out of 50 US states.

Even on a regional basis, Canada can’t create the same economics of scale. The most densely populated area of Canada is the Quebec City-Windsor corridor, which has a population density of around 82 people/km². In the United States, however, over 45% of its population lives in a state with a greater population density than that. When it comes to postage rates, density is destiny.

Canada Post’s Charter

The other major reason that makes shipping in Canada expensive does relate to Canada Post.

Canada Post has a charter that requires it to do a few things that private shipping companies do not. It has to provide universal service. This means that it has to deliver to every residential and business address in Canada, including rural ones. In addition, it can’t close rural post offices and has to charge uniform letter postage rates. This means it can’t charge more for delivering letters to remote areas, even if doing so is more costly.

At the same time, Canada Post has to run a profit. The crown corporation can’t use government revenue to subsidize postal routes. This means that it has to operate a lot of unprofitable postal routes, which translates into more expensive postage for everyone in the country.

The Formula for Expensive Postage in Canada

So at the end of the day the formula is as follows:

Geography + Universal Service + Affordable rates for rural areas = More expensive postage.

The U.S. has cheaper postage because it has less geography, more dense, and it is limited in how much it can raise postage rates.

How to Get Cheaper Shipping in Canada?

Shipping companies other than Canada Post can offer lower rates by two methods. They can remove either the universal service part of the equation or charge more for delivery to rural areas. Fedex for instance will add out-of-delivery area surcharges when delivering to some rural addresses. When they do ship to these areas, they often will use Canada Post for final delivery. However prices are very much all over the map and depend on the region. Geography is still a constraint.

However, you can save with certain smaller shipping companies, like Chit Chats. Chit Chats is able to provide lower fees by concentrating services in urban areas and using USPS to ship the final leg of the journey when delivering to the U.S. Essentially this allows clients to use USPS rates in Canada. By not servicing nonprofitable areas and leveraging the economy of scale that the U.S.’s higher population density provides to the USPS, we are able to pass savings onto our clients.

Conclusion

So why is shipping in Canada so expensive? Canada’s immense geography and low population density means that no company can provide rates on a par with the U.S. due to missing economies of scale. The only exceptions are niche operators, like Chit Chats.