In today’s logistical market, budgeting your supply chain is harder and fundamentally different. The rate swings of Covid-19 changed the landscape. The Red Sea crisis which caused rates increase 195% between December 2023 and January 2024, solidified this new landscape.
In a world where geopolitical events reroute trade overnight and new tariffs crop up unexpectedly, many logistics budgets are outdated before Q1 ends.
Logistics and supply chain management professionals are left picking up the pieces from political chaos around the world. Unfortunately, we can’t approach planning the same way we did six years ago.
Cost pressures are now long-term features of global trade, not temporary shocks, according to UNCTAD. Budgeting for a supply chain has never been more difficult, but doing it well in this climate presents genuine competitive advantages.
This article will cover six practical techniques that experienced logistics professionals can use to budget with more resilience and foresight in this volatile climate.
1. Use scenario-based modelling instead of static budgeting
Annual fixed budgets don’t reflect the real world anymore. Instead, leading supply chain teams use three forecasts: best case, worst case, and base case.
This approach allows you to model variables like ocean freight, bunker fuel costs, delays, and inflation with more contingency. It means you have a budget prepared for multiple eventualities, depending on how the year plays out.
Gartner’s 2024 Supply Chain Risk Survey found 42% of procurement leaders consider disruption to be the biggest threat to success. In fact, the three biggest risk factors were all totally outside the control of businesses. Highlighting the need for a scenario-based model, which leaves you prepared for multiple eventualities.
You can see the impact of rate spikes on overall margin ahead of the event. Understand and adjust inventory and route strategies in different cost environments. Basically, you're budgeting for Disruptions instead of being blindsided by them.
Source: Gartner’s 2024 Supply Chain Risk Survey
2. Build cost contingencies into freight contracts
Don’t fall into the trap of budgeting based on freight rates only. Unexpected costs are, unfortunately, an increasingly large part of the picture. Demurrage, surcharges, port congestion fees, bunker adjustment factors or low sulphur fuel adjustments can all be leveraged against the shipper. Often unexpectedly and completely out of their control.
Factor a contingency for these costs into the budget for shipments, based on historical data.
Another technique is to use a reputable logistics service provider, which reduces the likelihood of you being hit with additional charges.
At WTA, we work to significantly reduce the amount shippers pay in added charges. Whether that is through route optimisation, better communication, simplified customs procedures or a huge range of other techniques.
Lean into our expertise, and see how we can reduce your additional costs, reach out below.
3. Take advantage of bonded warehousing and trade agreements
Duties and taxes can be leveraged strategically to improve budgeting.
If you’re not using tools like Inward Processing Relief (IPR), bonded warehousing, or Free Trade Agreement (FTA) proof of origin, you may be leaving savings on the table.
“I’m always recommending customs or bonded warehouses to importers. Bonded warehouses allow you to store goods in duty suspension, so as long as they’re in bond, the goods aren’t subject to duty.
It’s only once you decide to release them into the market then the duties become due. Alternatively, you could re-export the goods and avoid duty in that country altogether.”
Jamie Craig, WTA Customs Consultant
These strategies help you to manage cashflow and could be the difference for keeping your budget on track from one quarter to the next.
Your customs service provider should be willing to go through these options with you, allowing you to improve cash flow and budget more effectively. Alternatively, speak to our customs team lead Jamie with the button above.
4. Shift to strategic inventory holding
Traditional supply chain thinking generally prioritised keeping inventory lean. Which made sense as holding inventory can mean additional cost. But that works best when lead times are predictable. Rarely the case these days.
When shipping disruptions hit, such as port closures, vessel rerouting, or political unrest, the cost of urgent air freight can be an unwanted necessity. But it’s almost certainly cheaper than a stock-out halting production, so it puts businesses in a costly and budget-busting situation.
A modest holding of local storage is a affordable way to manage that risk and keep costs more predictable.
McKinsey research from 2023 showed 93% of supply chain leaders are increasing regional stock or holding strategic inventory buffers, and you can understand why in this environment.
5. Use rolling budgets to live cost tracking
Static budgets made for an entire financial year are unlikely to remain realistic throughout. Such is the pace of change on freight rates and other costs. Covid, the Red Sea diversion and US tariff programme in 2025 are all proof of that.
Adopting rolling quarterly budgets that adjust to live cost data can mitigate against this.
Use integrated landed cost software to show exact costs by shipment, including duties, fuel, handling, and CO2 fees. Reforecast the budget for key trade lanes every 6-8 weeks.
“By using a visibility tool, shippers can also get a much greater understanding of the costs associated with each trade lane. They should provide you with real-time cost and timing information. This not only allows you to budget more effectively using previous data, but also makes it extremely easy to see on what route you have excess costs.”
Liam Launders, Head of Sales, WTA
6. Budget by trade lane, not by mode of transport
It’s a shrewd budgeting move to segment your costs by trade lanes, rather than by mode. Segmenting your budget by air, sea, and road is too high-level. It doesn’t reflect the real variation in risk or cost across regions.
By trade lane budgeting, it means you get more granular insights into what part of your supply chain is costing more than expected.
Such as the Red Sea diversion which may have caused a spike on Asia-Europe import costs. Budgeting this trade lane allows you to see that other aspects of your supply chain, such as transatlantic shipments, are not going over-budget.
This approach gives you better clarity on cost exposure.
In conclusion, you can’t control global events, but you can control how you plan for them.
Budgeting in today’s supply chain world is about embracing uncertainty. These six strategies don’t eliminate volatility. But they will hopefully help you work with it.
The businesses that budget well won’t always pay the lowest price, but they avoid the highest cost, which is being caught out when things go wrong. At WTA, supporting businesses in their logistical strategy is what we do best. Reach out to us for a conversation about your supply lines below.
