Ocean, Air, Profits, and Losses | National Review

Boring Regulation Fixes Are the Way Out of the Supply-Chain Crisis | National Review


Shipping containers are unloaded from ships at a container terminal at the Port of Long Beach-Port of Los Angeles complex in Los Angeles, Calif., April 7, 2021. (Lucy Nicholson/Reuters)

What’s the difference between shipping by ocean and shipping by air? It might be the difference between a profit and a loss, at least for Japanese electronics manufacturer Murata.

Bloomberg reports that Murata has had to ship its lithium-ion batteries by air because ocean-shipping capacity wasn’t available. Despite record-high demand, Murata’s battery unit is set to post a loss for this fiscal year:

“It might still be possible that our battery business posts a profit this term, but I believe I will probably need to apologize for a loss,” [Murata president Norio] Nakajima said. “We are being forced to use airfreight to deliver our batteries because ships are unavailable, and that costs an outrageous amount of money. If we were able to use sea routes, we should be able to make a profit.”

On top of inflated base cargo fees fueled by high demand, batteries shipped via air incur extra handling charges because they’re a fire hazard. The Kyoto-based component maker’s transportation woes are yet another sign that the global supply crunch affecting holiday deliveries isn’t likely to ease anytime soon. Meanwhile, the new omicron coronavirus variant may push up container rates further next year if the mutation triggers Chinese port closures like those in 2021, according to Bloomberg Intelligence analyst James Teo.

This illustrates another distortive effect from the supply-chain crisis. Profit-loss signals are used in market systems to indicate what’s working and what isn’t. Profits reward businesses for successfully meeting some existing demand, and losses warn them that they aren’t meeting demand effectively. But when shipping costs are making the difference between a profit and a loss, those signals become worthless.

It’s especially unfortunate that the product in question is lithium-ion batteries. Improving batteries is one of the key technological challenges of our time. The extra money that Murata had to spend on shipping is money that it couldn’t spend on making better batteries.

The consequences of the supply-chain crisis are more than just delays and higher prices, as if those aren’t bad enough. It is also warping market signals and harming innovation. Those effects are much harder to measure than counting the number of boats waiting for a berth at Los Angeles/Long Beach, but they are no less real.

Dominic Pino is a William F. Buckley Fellow in Political Journalism at National Review Institute.





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Tony Beasley
Tony Beasley writes for the Local News, US and the World Section of ANH.