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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?

Geography 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.

Having many customers close together makes it easier to batch large shipments and reduce costs. Reduced costs means that carriers can offer lower rates throughout the country. 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 Canada Post can not.

You might be thinking: is it really that bad? Most Canadians live in cities and a few kilometers 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 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 Obligations Lead to Expensive Postage

The other major reasons that make shipping in Canada expensive relate to Canada Post, as it is the main shipping provider for the country.

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 which means that it has to deliver to every residential and business address in Canada, including rural ones. It also has to charge uniform letter postage rates so it can’t charge more for delivering letters to remote areas. Finally, it can’t close rural post offices. This means that it has to operate a lot of unprofitable postal routes.

At the same time, Canada Post has to run a profit. The crown corporation can’t use government revenue to subsidize these routes. Canada’s immense size means Canada Post has to deliver to a lot of remote places like Iqualuit (which can’t be accessed by road or rail). It also has to keep the rates affordable for those areas.

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, and it is limited in how much it can raise postage rates.

Using Other Shipping Companies

Other shipping companies can sometimes offer lower rates by removing either the universal service part of the equation, or charging 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. This allows us to reduce costs by not servicing nonprofitable areas and leverage the economy of scale that the U.S.’s higher population density provides to the USPS.

Conclusion

So why is shipping in Canada so expensive? The low density of the country and its immense geography mean that no company can provide rates on a par with the U.S. The only exceptions are niche operators, like Chit Chats.

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