[Issue Analysis] Potential for logistics disruption during the pandemic vs. after the US-China tariff deal is reached

• In the wake of President Trump's 145% bomb tariffs on China, which have severely curtailed bilateral trade, the two countries have agreed to meet face-to-face for the first time. Last week, U.S. Treasury Secretary Scott Bessent and USTR Chairman Jamieson Greer agreed to meet with China's Vice Premier He Lifeng in Switzerland from May 9-12. It's exciting to see that China, which has refused to even talk because of its pride in the tariff bomb, is finally coming to the table. Secretary Bessent has indicated that the talks won't result in a trade agreement between the U.S. and China, but that they won't make things worse and will take a step-by-step approach. Sooner or later, however, the U.S. is likely to eliminate or significantly reduce the high-rate tariffs it has been imposing on Chinese domestic products. This raises concerns that hitherto pent-up imports from China could surge in a short period of time, and that logistical disruptions similar to those seen during the pandemic could recur, as China's position as a manufacturing base is still so strong that there is no obvious alternative. However, simple comparisons are risky, as the environment and structure are quite different during the pandemic and now, and we would like to analyze the potential for logistical disruptions based on the similarities and differences between then and now.

Logistics disruption during the pandemic (2020~2022)

• The direct trigger for logistics disruptions during the pandemic was, unsurprisingly, a surge in import volumes. The spread of COVID-19 caused major factories around the world to shut down, paralyzing ports and logistics infrastructure, bringing the global supply chain to a virtual standstill for a time. When economic activity partially resumed, distributors and manufacturers rushed to place orders to meet the pause in demand, and some overestimated demand and over-ordered, creating a bullwhip effect. As a result, demand for containers increased dramatically, and carriers rushed to add ships to expand supply, but at the same time, ports were experiencing labor shortages due to coronavirus quarantine restrictions, adding to the backlog. A prime example is the Port of Los Angeles/Long Beach, which at one point had an unprecedented 100+ container ships at sea waiting to berth. In addition, there was a shortage of chassis to move the unloaded containers, and with many truck drivers leaving the industry during the pandemic, the transportation bottleneck extended beyond the port. The same was true for warehousing: there was simply not enough space to handle the rapidly increasing volume, and the national average vacancy rate dropped to around 1%, causing warehouse rents and overall logistics costs to skyrocket. The result was an unprecedented 40'HC freight rate between Shanghai and Los Angeles exceeding $20,000, and the bottleneck lasted for more than two years with no short-term relief.

Scenario in case of a tariff deal in 2025

• With the U.S. and China now in negotiations over high tariffs in 2025, the market is bracing for the possibility of a short-term surge in Chinese imports, as manufacturers and distributors may seek to restore unfilled inventories and pre-empt future price increases - a so-called “order rush” could occur. However, at this point, most distributors and manufacturers have already built up some inventory. Many have learned from the post-pandemic experience and have adopted a front-loading strategy during this tariff conflict, and some level of pre-emptive ordering has already taken place. Therefore, the likelihood of a sudden explosion of additional demand in the name of “stocking up” in the short term is likely to be limited. Of course, there are variations across industries. Seasonal and trend-sensitive product lines like apparel and toys are structurally difficult to stock for the long term, so companies dealing with these items are likely to see a short-term surge in ordering after the tariffs are lifted. And even for companies that are already well-stocked, some level of import surge is likely to be inevitable, as may consider additional imports to match the new unit price terms reflecting the tariff cuts. Of course, this is unlike the pandemic, when supply was completely disrupted, as various means of tariff avoidance have already been widely used, such as storage in bonded warehouses, FTZ (free trade zone) storage or transit through third countries, and securing alternative sources of supply. Nevertheless, if tariffs are substantially lifted, there is still the potential for large orders to flow into the market all at once. In terms of port capacity, while some automation and operational streamlining has taken place, major western ports such as Los Angeles/Long Beach still have structural bottlenecks, and overloading of container yards and drayage sections could recur. On the transportation side, truck driver shortages persist, and railroads can quickly become bottlenecks under limited supply. Warehousing isn't much better: while there has been some expansion of facilities since the pandemic, there are large regional variations and the national average vacancy rate is still in the low 3% range, which doesn't leave much room for maneuver.

  
  

 Summary of similarities vs differences 

Item	Pandemic (2020~2022)	When the tariff deal is reached in 2025
Nature of Demand	Recovery of demand gap + over-ordering (panic ordering)	Demand for stockpiling
Factors driving volume growth	Sudden explosion of demand disrupts supply chain	Pre-emptive ordering in anticipation of tariff relief
Port operating conditions	Quarantine restrictions, Workforce down, many work stoppages	Some automation adopted, labor availability improved but bottlenecks remain
Container handling	Yards and CYs saturated, vessel berthing delays persist	Automation expanded, but bottlenecks reoccur at peak
Inland transportation	Driver exodus, chassis shortage, rail disruption	Drivers still scarce, rail supply constrained
Warehouse capacity	Space shortage due to surge in demand, Vacancy rate 1%	Some expansion, but regional variations exist, average vacancy rate in low 3%
Freight rates trending	Shanghai-LA 40'HC reaching $20,000+	GRI underway, very likely to spike
Customer impact	Lead time instability, cost spikes, claims increase	Risk of SLA non-fulfillment exists, customer complaints likely to increase
Policy response	Situation unpredictable, more reactive than proactive	Some level of predictability, proactive strategy possible

Conclusion and Outlook

• While a tariff deal in 2025 and a full-scale increase in import volumes from China is unlikely to result in the same kind of logistics disruption as during the pandemic, partial bottlenecks and regional disruptions could easily be replicated. In particular, port unloading delays, truck supply and demand imbalances, warehouse space shortages, competition for vessel space, and freight rate spikes are real risks. In response, we believe that distribution, manufacturing, and importers should take the following proactive measures.

• Coordinate and diversify the timing of shipments in advance (Frontloading strategy)

To avoid logistics disruptions after the US-China tariff negotiations are concluded, it is necessary to consider frontloading in advance. Since the disruption is expected to occur within the U.S., this applies not only to inbound shipments to the U.S. but also to outbound shipments from the U.S.

• Secure warehousing and establish a cross-dock operation structure

Given the warehouse shortage, it is important to secure warehouse space through advance coordination and increase cross-docking capacity so that imported goods can be delivered immediately instead of being stored in warehouses.

• Establish fixed freight contracts with carriers and shippers

In the event of a logistics disruption, freight rates are inevitable to spike, especially in the trucking and drayage sectors, where once a driver leaves, it takes a long time to get back, creating a supply and demand imbalance. If you have a certain amount of fixed volume, it seems advantageous to sign a fixed contract with a carrier with a guaranteed volume. The guaranteed volume will allow the carrier to retain drivers without laying them off, giving them more capacity to handle future increases in demand.

• Revise SLAs and tighten lead time management to avoid container demurrage charges

As the likelihood of container demurrage/detention charges increases due to port congestion or transit delays, it is important to revise SLAs with logistics partners to clearly establish in advance the time thresholds for loading and unloading, the scope of responsibility in case of delays, and response procedures. In addition, by closely managing the overall lead time, including customs clearance, warehousing, and inland transportation, you can minimize bottlenecks and reduce overall dwell time by allocating alternative routes or additional resources in advance.