OTTAWA -It's 7:20 p.m. at Canada Post's cavernous mail-sorting plant in Ottawa. As soca music blares from a portable stereo, two men load parcels on to a conveyer belt so they can be weighed and scanned.

What happens next looks like a scene from the 1936 Charlie Chaplin film Modern Times. The parcels are moved along steel rollers by a blond woman in black T-shirt and jeans. If a package is going to Toronto or out of province, the worker lets it pass. If it's heading anywhere else in Ontario, she pushes it forward with gloved hands on to a roller line going the other way. There are 16 workers pushing parcels from line to line in this area of the plant. If one has to leave his or her post, the whole system shuts down.

The plant, which handles an average of 1.8 million pieces of mail per day, is a nightmare of antiquated process flow and design. It is laid out over three floors, which means endless trips up and down the seven freight elevators, hauling metal cages full of mail.

It is a confusing, crowded place, and you have to watch your step as forklifts whiz by. Much of the work is still done by hand, and the rest handled by equipment that is, for the most part, old, second-hand, or, in the case of a mail-stacking machine, created out of spare parts from extra letter-sorters.

Workers do too much bending, lifting and dumping, which contributes to Canada Post's 8,000 accidents per year, or one per six operating employees. In winter, cold air gusts in through the east loading docks. Pigeons fly in, and stay. The building even lacks enough parking for employees.

"A good processing plant is like a lung," inhaling and purging mail, says Dean Ryan, an analyst who has worked in the plant for 26 years and is giving a tour this September evening. If so, this one is wheezing heavily. But then, so is the entire operation.

To Moya Greene, Canada Post's chief executive since May, 2005, the company's ageing infrastructure -- the result of years of under-investment and neglect -- is a big reason why its return on equity has averaged just 11% over the past five years and net income an anemic 2.4% of revenue.

Canada's second-largest Crown corporation -- with $7.3-billion in revenue last year --needs about 200 new sorting machines to replace its complement, which are, on average, five generations old.

It needs one-level plants with better road and air links (many, like the one in Ottawa, were built near train stations, which used to be how mail went out) with orderly, ergonomically friendly process flow, modern computers and digital and scanning technology. One of the first places that needs work is Winnipeg, where sorting is spread out over several stories of a 50-year-old downtown building; the caravan of departing mail trucks ties up traffic.

"Most of the facilities are in significant need of upgrading, including the introduction of new technology," says Don Woodley, interim chairman of Canada Post. "It will require very significant capital."

In all, Ms. Greene figures it would cost $2.7-billion over five to seven years for new buildings, equipment, technology and training. The time to start is now: a modern post would need far fewer employees than the 72,000 now employed by Canada Post and it just so happens that 27,000 of them are due to retire in the outgoing Baby Boom wave in the next decade. "If we can put together a more modern view of the company, put it in place and calibrate it to be synchronized in a way to those retirements, we have an opportunity to modernize without dislocation," Ms. Greene says during an interview at Canada Post headquarters in south Ottawa. "We have a once-in-a-35-year opportunity, and a massive risk if we don't."

But how Canada Post pays for the upgrade is a tricky question. With its weak profits, the cost of the overhaul exceeds its internal funding capacity. It could sell real estate, ask Ottawa for the right to raise debt in the capital markets, or request a subsidy, an option Ms. Greene says would be a last resort.

But Canada Post also has an opportunity to consider a bold way to fund its plans: privatization. It's an option the right-leaning think-tank C.D. Howe advocated in a report this year on grounds Canada Post's monopoly on letter mail delivery and its obligation to deliver to all Canadians is anachronistic and uneconomical in the 21st century. "There's no reason why postal service ought to be public -- there's not a public-good aspect to it," says Edward Iacobucci, one of the authors of the report.

The thought of selling all or part of Canada Post that may be too touchy politically. The minority Conservative government already caved in to public pressure and forced Canada Post to back off a plan to reduce rural mail service -- even though some routes pose hazards for drivers and Canada Post could have saved up to $315-million over five years by installing community mailboxes.

As for privatization, the Tories have said they have no intention of selling off part of the postal service, and the militant Canadian Union of Postal Workers (CUPW) is also virulently opposed. But full or partial privatization has worked in Austria, Germany and the Netherlands. And Ms. Greene-- who, as a senior public servant, represented Ottawa in the privatization of Canadian National Railway and later worked for two banks and Bombardier Inc. -- believes it's a compelling option.

"I'm not a person who has any problem with private ownership of equity," she says. "I believe there are lots of great companies out there where shares are held" publicly.

Could Canada Post be one such firm?

"In the future? Sure. So far, nobody [in government] has asked my opinion on this."

Deborah Bourque, president of CUPW, isn't as concerned about privatization as she is about deregulation of some of Canada Post's monopoly. But she regards Ms. Greene with suspicion: "We were quite concerned when she was appointed, given a career that had been steeped in privatization and deregulation, that that would be her agenda at Canada Post. We're still not convinced it is not her agenda."

One thing seems certain: Canada Post is not in the right shape to face increasing competitive pressures that threaten to end its streak of 12 straight years in the black, during which it paid hundreds of millions of dollars in dividends to Ottawa. Nobody is keen to return to the bad old days when the service was deeply in the red and drained government coffers. "We need to invest," board member Denyse Chicoyne says. "You can't wait until you lose millions of dollars a year before you do something about the business."

Canada Post's costs are rising due to higher benefit, pension and transport expenses. Its Purolator business and other parcel delivery services compete against global giants UPS, Federal Express and DHL and its fastest-growing business, direct marketing, is an open field. Foreign "remailers" have tried to steal away Canada Post's exclusive international mailing business and lost a court challenge, but they are now lobbying Ottawa to deregulate that part of the postal system.

Meanwhile, this year, for the first time since the early 1990s, volumes of "transaction mail" -- the bread and butter of the postal business -- are down, by 1%, as more people receive and pay their bills on-line. That follows a trend seen elsewhere. Meanwhile, Canada Post's efforts to sell online billing services to big customers is going slowly. "The profitability is definitely sputtering," says Ms. Greene, who forecasts profit to dip this year by 10%, to $100-million.

Ms. Greene also faces a grumpy workforce, following decades of poor labour relations. She highlights a recent survey showing 71% of employees felt their team leader treated them with respect, up eight points year over year, and CUPW workers this year voted for a four-year deal that pays them a bonus of up to $1,200 a year. But in the same survey only 39% said they felt their efforts were recognized and appreciated. There are a staggering 28,900 grievances outstanding against the post.

"I'd say 85% of our people have their heart and soul in Canada Post and are very proud," said Ms. Greene. "But 15% of our people don't care enough?But there is an emerging new culture at Canada Post, a culture where people are proud, where people want to be successful," she says. Ms. Greene has charged her managers to go out and visit customers and plants; their bonuses now depend on it. "There were a lot of managers that hid out in offices and believed that the crush of their work was behind a computer terminal," she said.

Canada Post also has another problem. Its employees are absent on average 15 days per year; Ms. Greene hopes to bring this down to 13 within 18 months. There are 10,000 workers on "modified duties" due to injuries; they spend on average 102 days in that state, compared to a manufacturing industry average of 42. Canada Post recently farmed out medical case management to Manulife Financial.

Winning over your staff when you intend to slash the workforce and close plants isn't easy, but everyone, including Ms. Bourque, agrees Canada Post needs to invest in the business, and that means more automation and less plant jobs. Ms. Bourque would like to see Canada Post balance that by hiring more people in customer service.

Serving customers better is a key priority for Ms. Greene. But, she says, "The way I would ask the question is: "How can we live up to what Canadians expect of us, and what our customers expect of us and what our shareholder expects of us with the fewest number of people? We're in a broad communications market where nothing is protected anymore. If we don't take that attitude the cost structure is just going to put us out of it."