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A Canada Post truck is seen on Tuesday, May 1, 2012 in Toronto.Matthew Sherwood/The Globe and Mail

A dramatically dwindling volume of conventional mail will push Canada Post to an annual operating loss of about $1-billion by 2020, according to a Conference Board of Canada forecast.

In a report titled The Future of Postal Service in Canada, published Tuesday, the think tank estimates that Canada Post's transaction mail, addressed and unaddressed advertising mail and publication volumes will decline by 26 to 27 per cent by 2020.

The federal Crown corporation faces a series of challenges, most obviously the rise of the digital age, but there is no single change to prices or service standards – such as alternate-day delivery – that will be enough to ensure self-sustainability, says the report.

"Canadians recognize that the way they use mail is changing, but haven't yet fully understood how severely that is affecting Canada Post's business model," said Conference Board vice-president of public policy David Stewart-Patterson.

"E-commerce is boosting demand for parcel delivery, but households are sending fewer letters, businesses are encouraging electronic bills, governments are moving to direct deposit, and advertising is moving to the Internet. Canadians must consider what kind of postal service they really need in the years ahead."

Canada Post which has a monopoly on lettermail – pulled in a modest pre-tax profit of $127-million in 2012 as a result of one-time gains from labour concessions, but the mail carrier is expected to return to its pattern of yearly losses.

It fell into a deficit in 2011 after 16 years of profitability thanks to efficiency improvements and regular prices increases, says the analysis.

The postal service is also in the midst of a $2-billion overhaul to enhance productivity and boost efficiency, and carries a $5.9-billion pension liability.

One bright spot is parcel delivery, which is expected to buck the downward trend and increase by 26 per cent by 2020, thanks in part to the growth of e-commerce.

A poll of Canadian residential customers, conducted for the Conference Board, found that almost half of households say they now send two pieces of mail or less per month.

At the same time, a huge majority of Canadians surveyed agree that a 61 cent stamp is an "incredible bargain," says the report.

Overall, Canada Post appears to be providing a quality of service that is higher than customers now expect or need, the study found.

Five cost-cutting options for Canada Post were looked at: wage restraint; alternate-day delivery for mail, but not parcels; converting door-to-door delivery to community mail boxes; continued replacement of corporate post offices with franchised postal outlets; and reduced speed of delivery.

The option with the biggest single impact would be eliminating delivery to the door for urban residential customers, with an estimated $576-million per year in savings, according to the report.

Olivia Chow, the Official Opposition critic for transport, infrastructure and communities in Ottawa, said service cutbacks is not the way to go.

"They should aggressively expand Internet service and generate enough revenue that can provide the support for traditional services," she said in an interview.

"Canada Post is supposed to serve the community, and that includes Canadians who can't afford Internet and seniors who are dependent on traditional mail."

The study was commissioned by Canada Post, which welcomed what it described in a news release as a "comprehensive report" that will serve to start a dialogue with people across the country over what they value and what they feel needs changing.

"Canada Post must seriously consider all the options put forward by the Conference Board with the understanding that no single initiative will be sufficient to stem the losses from the steep decline in mail volumes," it said, pointing out that Canadians mailed close to one billion fewer letters in 2012 than in 2006.

The Genesis Public Opinion Research Inc. poll of 1,212 residential customers over the age of 18 was conducted by telephone between Sept. 26 and Oct. 10, 2012. The data are considered accurate within plus or minus 2.8 percentage points 19 times out of 20.

Editor's note: An earlier online version of this story incorrectly stated that the postal service carries a $4-billion pension liability. In fact, there was a solvency deficit of the pension plan of $5.9-billion in 2012. This online version has been corrected.