Monday, March 01, 2010

Kaohsiung port takes a hit

I was reading this fascinating article today on wooden molds for making parts for the old Taiwan steam railway trains, when my friend Thomas flipped me a link to the latest blow to Kaohsiung seems that the Danish shipping firm Maersk is pulling out of Kaohsiung:
A Danish giant's decision to pull out of Kaohsiung is seen as a huge blow to the port's future as China gains ground.

The world's largest boxship player has denied it is abandoning its operations in Taiwan in order to concentrate on the growing Chinese market.

Maersk Line told TradeWinds that the decision to pull out of Kaohsiung Port was made as part of a global strategy, which considers each port as a "unique situation".

Tensions have been running high at Kaohsiung since APM Terminals handed over control of piers 76 and 77 to South Korea's Hanjin Pacific at the end of January.
The existing Maersk contract expires in May, and workers at the docks actually struck this month in an attempt to get better severance pay. Maersk is strenuously denying that the decision has anything to do with its investments in China. But as this report observes:
The DPA report in the Liberty Times said Maersk last year stopped the lease on two of its four container terminals at Kaohsiung Port and would not renew the lease for the two remaining terminals when it expires. The reason being is the carrier aims to increase its investment in mainland's Port of Xiamen.

Ranked the world's third busiest container port in the 1980s, Taiwan's largest port has seen its container throughput decline from 10.3 million TEU in 2007 to 8.5 million TEU in 2009. Kaohsiung's demise in recent years has been blamed on the expansion of neighbouring ports, particularly those across the Taiwan Strait on the mainland.
The fall in the global ranking of Kaohsiung port is keenly felt in Taiwan, where international rankings on any scale are an object of much local anxiety. Another report adds (the graph below is from that report):
Indeed, there is evidence that Kaohsiung's share of the East Asian container shipping market has gradually been eroded by the emergence of rival ports in the region over the past few years. The growth of China's port sector has surpassed that of Taiwan as manufacturers have shifted their focus to the Chinese market. The development of Chinese facilities has been aided, in large part, by government tax incentives and low labour costs, which have left their Taiwanese counterparts struggling to compete. As the island's largest port, Kaohsiung has suffered the brunt of the changes and, having been the world's third-largest container port in the 1980s, saw its ranking slip to 22nd in 2008.

World rank of Kaohsiung port in TEUs handled

Kaohsiung has been in a long-term fall-off as Taiwan's factories have moved to China. Another problem for Kaohsiung in maintaining its ranking is that other ports are coming online, including the new port of Taipei in Bali, and the port in Anping in Tainan, a satellite of Kaohsiung. Taiwan currently has seven international ports: Kaohsiung, Anping, Suao, Keelung, Taipei, Hualien, and Taichung. The ROC Yearbook for 2009 says that in 2008, around 74,000 ships visited Taiwan's ports, handling a total of 12.98 million TEUs. The Port of Kaohsiung handled 9.68 million TEUs of cargo, followed by Keelung with 2.06 million TEUs. Since Keelung is being phased out in favor of the new Port of Taipei, which is five times the size of Keelung, it is obvious that Kaohsiung's share of the island's container traffic (which has increased slightly even though Kaohsiung's traffic has decreased) will continue to decline.
Even More Daily Links
  • A majority say they will vote for Hau over Su Tseng-chang if Su runs in December against Hau for Taipei mayor, but then a majority says they think Su will win.
  • Ma's approval ratings now at 29 in pro-KMT UDN poll.
  • China Times goes hysterical on climate change. No wonder the public doesn't know what to think.
  • Taichungers: March 9 is the AmCham Taichung Happy Hour at Leble'dor Restaurant in Taichung, starting at 7
Don't miss the comments below! And check out my blog and its sidebars for events, links to previous posts and picture posts, and scores of links to other Taiwan blogs and forums!


Anonymous said...

Always the conspiracy theorist, I am wondering if the diversification of Taiwan's shipping ports are being managed on the domestic level to erode Kaohsiung's political power.

It could be conceivable that the satellite ports are an effort to disperse economic and political power from a significant "green" metropole and diffuse it into other, more politically ambiguous localities. no?

Michael Turton said...

In a way that's true, I think, because the shift to the north is just another example of the way Taipei accrues resources at the expense of the south. But the north does need a port, it's a senseless waste of resources to put stuff on trucks from Kaohsiung to Taipei.

Of course, I'm worse than you -- it was kind of the Taiwan government to put a port right where the Chinese will need it when they invade. :)

insectlin said...


Dezhong said...

"It could be conceivable that the satellite ports are an effort to disperse economic and political power from a significant "green" metropole and diffuse it into other, more politically ambiguous localities. no?"

If that was true, it could very easily backfire since the port of Kaohsiung is one of the city's many areas that are still administered by central government agencies and not the city government itself.

News like this are probably grist to the mill of those people on both sides that fight over the jurisdiction over these areas.

Also, despite being a "green stronghold" whenever there is a mayoral election, Kaohsiung's city council and the borough chiefs are predominantely from the KMT/supporters of the "blue" camp (not all of which are happy about the fact that much of the city's area is to some degree controlled by the central government of course).

Islander said...

Michael, you wrote "Another problem for Kaohsiung in maintaining its ranking is that other ports are coming online, including the new port of Taipei in Bali, and the port in Anping in Tainan, a satellite of Kaohsiung."

I think you meant that the Anping port is a satellite port of Kaohsiung port and not that the city of Tainan is a satellite of the city of Kaohsiung. From the first Dutch colonial times to the Japanese colonial times, Tainan was the capital of Taiwan. Tainan was the first city founded in Taiwan. It is not a satellite of any other city.

irwinc said...

What this mention of Keelung port being phased out? I guess I haven't been following the news in Taiwan as closely as I thought.

Michael Turton said...

Keelung port is being turned into a cruise ship destination, largely aimed at the China market.

Thomas said...

"The development of Chinese facilities has been aided, in large part, by government tax incentives and low labour costs, which have left their Taiwanese counterparts struggling to compete."

This quote from the report you cited is true. However, I think that another important impetus for the growth of Chinese ports should be mentioned.

Trade is a money-maker, and localities will all try to take advantage of it. Therefore, local governments that are located near a navigable river or the seaside will generally favor the development of port facilities. As a result, China has a lot of ports and more are being built or expanded every month.

This means that there is a lot of competition for cargo sources. Incidentally, this competition, combined with higher operation costs, is what is slowly eroding the status of Hong Kong in the throughput rankings. In fact, Hong Kong's throughput has been declining on real terms as well. We just don't notice it as much because Hong Kong mostly handles transshiped containers, which are counted twice. Competition for cargo has extended to transshipments. Many Chinese ports want a share of the transshipment pie. And, as you note, they have lower operations and labor costs.

So when Maersk says that it is not abandoning Taiwan to focus more on China, the company might indeed be telling the truth. For Maersk, the jump across the strait may simply be a wise, localized business decision.

Transshipping containers through Xiamen is just as easy as going through Kaohsiung, and the costs are lower. Maersk may also feel that more import/export cargo will go through that port. So their decision probably makes business sense and may not be linked to a China-looking strategy.

I feel that Maersk's departure is really important in terms of debunking the myths that the Ma administration propagates regarding China trade.

Policies that make it easier to invest in China will only cause more Taiwanese factories to relocate to China. If the factories continue to leave, much of Taiwan's port and logistics industry will shrivel.

This is the type of issue that the DPP SHOULD be using to clobber the Ma administration with. If policies that favor increased investment in China were so beneficial to Taiwan's economy, why would a world-class port operator be pulling out of Kaohsiung? Such a question would put the administrations economic planners in a tight spot.

Anonymous said...

I have a "Daily links" submission:;cbsCarousel

"Rare Video Obtained by "60 Minutes" Shows Pentagon Employee Selling Secrets to Chinese Spy"

A 60 Minutes piece on Chinese espionage in the United States. Aside from the egregious description of Taiwan's status, an interesting piece.

Red A said...

If Hanjin is taking over, its probably for the best - I have never used Maersk to ship anything - all the big customers use Evergreen and Hanjin as they are the cheapest.

Many of the feeder ports actually still feed to Kaohsiung or Keelung, too, but a lessening of volume makes sense anyways, as Taiwan is not making much bulky clothing, furniture, toys, etc., and more electronics parts, etc.

Thomas said...

Red A, I don't follow your argumentation. Hanjin was already in Kaohsiung. The Korean operator simply took over the berths that APM vacated. This means that there is one fewer port operator in the port, meaning there is less competition.

Here is Hanjin's press release describing the takeover:

If you read it with a critical eye, one that has experience catching BS, you will see that the golden shovel has been employed generously by Hanjin.

Hanjin says that the port operator's Kaohsiung operation will double its handling capacity. This is beneficial FOR HANJIN in the short term because the company will gain a greater share of the local market and may be able to increase the efficiency of its operations. This would benefit Hanjin's customers, but it would provide little benefit to local shippers and logistics companies, who have one less port operator to choose from. Note that the press release does not mention any benefits for the port. It merely says that Kaohsiung Port has a master plan that promotes consolidation. In the happy happy world of corporate press releases, it is standard practice to discuss "win-win" situations, Hanjin can't really put its finger on an advantage for the port.

Neither can the CEO of APM Asia Pacific. She merely says that this will benefit Hanjin and be in line with the port's master plan. Pay attention to this quoted sentence in particular: "Market conditions have changed and we have decided business-wise it makes sense to transfer our Kaohsiung Pier 76-77 location to Hanjin."

See that? APM says frankly that market conditions are not what they once were. Barring the inflation of bubbles, when big investors start to leave your economy because they feel that the market conditions are no longer favorable, the alarm bells should start ringing. Yet the Ma administration has plans to accelerate the decline. Stupid stupid stupid!

Marc said...

It seems to me this is a one-sided perspective to the issue. Does anyone know what the master plan is for the city of Kaohsiung? The city government has been aware for sometimes of the increased competition and decline in port business, so they must not be sitting on their hands.

San Francisco, California used to have a very busy port. This was a primary source of its local economy back in the day. Gradually, as SF lost its industrial businesses and manufacturers and the port declined due to competition, the city was already being developed into the major finance center that it is today.

Kaohsiung has already demonstrated it potential to develop and move in new directions. Surely these plans are being carried out as we speak.

Michael Turton said...

I agree Marc, but it just seems like everyone is rank-mad here in Taiwan.

Anonymous said...

"This would benefit Hanjin's customers, but it would provide little benefit to local shippers and logistics companies, who have one less port operator to choose from."

Maybe I am crazy but Hanjin's customers ARE local shippers, so how does it harm them? And again, most large volume export customers stipulate which carrier to use, not the local suppliers. Its not as if SME's choose the shipper - its the overseas customers who do so. And Hanjin and Evergreen get most of that business in my experience.

I think you guys ascribe way too much to politics when these are basically commercial matters. Ma should not be involved in choosing who gets to leave or stay in KaoHsiung port.

Red A

Thomas said...

Red A (anonymous), you are not crazy, but you have some misconceptions. Clearing them up will take space, so I apologise to anyone else who may be reading.

First of all, you are overlooking the fact that a port operator is not a shipping line. Hanjin is a company that has both port operation and shipping operation functions. They are not the same thing.

In this case, we are talking about Hanjin as a port operator and not as a shipping line. The clients of a port operator are shipping lines, not shippers. Hanjin certainly has its own shipping line as a customer. It might or might not be the only customer. As I am not sure about this, so I won't go down that path.

Terminals charge fees for their services. Those fees are generally charged to shipping lines. In a market where there are more terminal operators, the terminal fees may be lower due to competition. Incidentally, this is one reason why the current operators in Hong Kong were against the development of a tenth container terminal. They didn't want a sixth operator to enter Hong Kong because it would create additional downward pressure on their fees in what is already a relatively competitive (and high-cost) market.

Shipping lines must cover the fees. If fees are lower, shipping lines can offer better deals to shippers who have bargaining power. The shippers may be large enterprises who choose a shipping line. They might also be logistics companies that help smaller enterprises get better deals by representing many shippers at once to the shipping line. In any event, it is usually the shipper/agent who chooses the shipping line.

In the case of FOB, the buyer might pay for shipping. But the buyer will not arrange shipment. The shipment will be arranged by the shipper, hence the name. In this world of low-price worship, shippers who can offer lower shipment costs are much appreciated by buyers.

As some of the cost of the terminal fee will be passed through to the shippers in this process, you can understand how less competition among terminal operators might negatively impact shippers. They will have to charge the buyers more for shipping. This might cause the buyers to look for cheaper competitors.

Of course, as Hanjin is also a shipping line, Hanjin would be charging terminal fees to itself. So it would have an incentive to offer a good rate. But don't forget that APM and Maersk line are also two sides of one coin. While APM is in town, the number of Maersk ships coming through the port will probably be higher. This gives shippers a choice of two shipping lines (and two operators). So, by removing APM the port operator, you will probably be indirectly reducing the number of Maersk ships that come through. This will result in less power for shippers/logistics companies who want to bargain for space on vessels. So, terminal fees aside, you will still be reducing competition. (cont.)

Thomas said...

Therefore, reducing competition among port operators, just as reducing competition among shipping lines, can negatively impact the shipper (in this case, Taiwanese shippers). If the price of terminal operation goes up, and you want to buy a slot on a shipping line, you will probably pay more for the slot in a market where the demand for terminal operations is more inelastic, all other things being equal.

Is demand inelastic in Kaohsiung? I don't know. I am not an expert on the inner workings of Kaohsiung Port. It is possible that this will not have a big effect on anyone. My comment was targeting the potential effect of a decrease in competition on the market. It was not a declaration of the failure or success of a port development strategy.

As for that strategy, I know that Kaohsiung is adding about 2 million TEU of capacity. I don't know enough about who they plan to ask to operate the new space because I have never looked into it in detail before. Maybe another operator will come in in the future, making my argument moot. Maybe operators will seek to reduce fees in order to attract more containers to facilities that are less and less crowded. Many things could happen.

But I do know that large port operators seek out markets that have growth prospects that they are confident in. If Kaohsiung really is about to take off due to some impressive port strategy, I find it hard to believe that APM would not want to be there to take part. So I return to the point that, to me, this shows that policies that favor the flight of factories to China may be doing harm to Taiwan. Clearly, APM does not feel that the growth prospects of the port are good enough to stay. And THIS is why some are saying that the withdrawl of APM is "a huge blow" to the port.