PARCEL September/October 2020

including in Q2 if it is validated), it may lead to unnecessary research and budget inaccuracies.

2020 Milestones, Variances, and Anomalies Identifying events or milestones that triggered expense changes, measuring the duration and quantifying the expense impact, as well as determining if these events will be repeated in 2021 is required. Carrier rate changes fall into this category. Scheduled rate increases, via a carrier contract and/or a General Rate Increase (GRI), should be notated, as should unplanned rate increases that may have occurred (e.g.

UPS and FedEx peak surcharges).

Additionally, the parcel expense impact of significant 2020 operational changes, such as adjustments to distribution center operations or closing store locations, should also be taken into consideration when planning 2021 expense.

Risks and Opportunities Incorporating risks and opportunities into the budgeting process is intended to provide guidance on potential budget variance, but these items are not defined well enough to include as an actual budget item.

Examples of risks include higher than expected carrier rate increases, loss of pricing discounts due to decreased volume, and increased expedited shipping expense (e.g. due to order processing delays).

Despite the gloomy expense outlook, budget opportunities may exist as well, and can include carrier rate reductions (through an RFP), shifting volume to more deferred services, and reducing split shipments. Again, these are items are prospective and not yet executed (although possibly planned).

Rate Increase Forecast Performing a rate increase forecast can provide a wellgrounded budget baseline. Performing this exercise also provides a more granular hindsight view when measuring budget expense variance.

A rate increase forecast should include both base rates and accessorial charges (each should be broken out by carrier and/ or service):  Base rate increases: Both the percentage increase and calculated CPP increase, as well as effective date (scheduled carrier GRI and/or contract effective date) should be included.  Accessorials: Identify the highest impact accessorial charges (e.g. residential delivery, fuel surcharge), estimate the net charge increase amount (drawing on recent annual increases), and budget as a CPP increase.

The process of forecasting GRI and accessorial increases can be daunting for those who have not done so previously. On the next page is an example of a basic table used to calculate a portion of 2020 rate increases for three FedEx services. Please note, this example is not precise as the pricing components shown are calculated separately and do not take into account compounding effects of some charges (e.g. fuel surcharge).

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