Monday, August 04, 2008

Cargo Links, Cargo Cults, and Taiwan's Ports

For years shippers have argued that direct cargo links to China would enable Taiwan's ports to regain their high rankings and return to competitiveness. Since links with China have long been treated, cargo-cultlike, as a panacea for all that ails Taiwan economically, it is only appropriate that the China Cargo Cult arrive, well, at cargo. A couple of articles from Lloydslist forwarded to me by a Loyal Reader comment on the possibility of direct cargo links. First, the Dream of Chinese link takes flight....

IT IS a year of expectations for the shipping community in Taiwan. Since Ma Ying-jeou of the Kuomintang party became president in May, a dream shared by many Taiwanese merchants has become possible.

The physical connection between mainland China and Taiwan — air and sea transport suspended since 1949 — is likely to be restored soon.

Direct cargo between Taiwan and China has to stop at a third party port, usually Japan's Ishigaki, sometimes Busan or Hong Kong, before sailing to the other side of the Taiwan Strait.

The Kaohsiung Offshore Shipping Centre is the only terminal in Taiwan that is licensed to receive transhipment cargoes directly from the two designated Chinese ports, Xiamen and Fuzhou.

According to the pledge that Mr Ma made during his election campaign, direct transport links between mainland China and Taiwan would be launched within a year of him taking office if he could reach agreement with Chinese authorities.

The next item on the action list is widely expected to be the restoration of a direct sea link for cargo across the Taiwan Strait, as hinted at by Chiang Pin-kung, chairman of Straits Exchange Foundation, a semi-official organisation set up by the Taiwanese authorities to handle technical and business matters with mainland China.

But alas, even when the gods deliver cargo, there may not be enough....

Meanwhile, container ports on the island have major concerns. Taipei Port Container Terminal, the joint venture between Evergreen Marine, Yang Ming Marine Transport and Wan Hai Lines, will open in January next year.

The new port is expected to compete directly with Kaohsiung and Keelung for cargo from north Taiwan.

Before dealing with the threat from Taipei port, Kaohsiung port in southwest Taiwan may want to first fend off competition from Xiamena and Fuzhou as its throughput growth slowed in the first half.

Kaohsiung port is also busy adding more capacity to its terminal as the utilisation rate of its berths exceeded 100% last year.

In the north, Keelung port has prepared an alternative plan to switch its business focus from cargo vessels to cruiseships in case volumes go down.

A ship under construction at the Taiwan Shipbuilding yard in Hsiaokang outside of Kaohsiung.

What has happened is that the government has been engaged in port expansion, meaning that the new ports are not so much developing new business as cannibalizing business from existing ports. Keelung, mentioned above, has long been bracing for this news. The second article below discusses some of the problems....(emphasis mine)

WHILE some believe the restoration of direct links for cargo across the strait seems to be a solve-it-all remedy for the marine transport and logistics industry, Robert Ho, president and chief operating officer of Yang Ming Marine Transport, says it is not the opening-up that matters, but the degree to which things open up.

The relaxation of non-transhipment cargo transport, which is the most likely deal to be struck by the end of this year, will offer little help.

The second largest container shipping carrier in Taiwan does not even plan to deploy a vessel on the trade should non-transhipment cargo be allowed to be shipped directly across the strait instead of via a third port.

Yang Ming currently charters slots from other lines on the trade.

"The route is not profitable," says Mr Ho. The more aggressive mainland Chinese shipping lines, which outnumber Taiwanese firms on the trade, have made the relatively small market very competitive.

The same thing has been noted on the direct flights. Once higher fuel costs and direct competition from Chinese airlines are are factored in, the fat profits vanish. People seem to have forgotten that once direct links are open cut-rate Chinese carriers will be able to ship cargoes. Can Taiwan firms compete?

However, Mr Ho admits that such direct links would be lower and transit time shorter as vessels do not need to visit Japan's Ishigaki to obtain a stamp before berthing on either side of the strait. The cost reduction would reflect on freight rates in the long run.

Good news for carriers, according to Mr Ho, would be the opening-up of the direct sea trade that allowed both transhipment and direct cargo to be carried by the same ship between any Chinese and Taiwanese ports.

Currently, ships that carry direct cargo to and from China and Taiwan cannot at the same time transport transhipment cargo. Also, just two ports in China's Fujian province are allowed to load transshipment cargo destined for Kaohsiung.

Note again the China issue....

Meanwhile, the volume of transhipment cargo coming from China is shrinking at Kaohsiung port as ports on the other side of the sea grow rapidly in scale and in the number of services they offer, according to Mr Ho. Yang Ming also ended a service between Xiamen and Kaohsiung last year.

However, it seems impossible for mainland China to let go a policy that helps nurture its own ports at a time where transhipment cargo has become the most coveted business for ports in the region.

Recall that those hordes of Chinese tourists can only fly to Taiwan on Chinese carriers. What makes anyone think the cargo business is going to be run on different principles? Especially since Ma has nothing to negotiate with, and yet must get a deal. That spells S-E-L-L-O-U-T.

Keelung Port seen from the ridges overlooking the city.

The next piece discusses Keelung and the costs of shipping....

ALMOST certain to miss its volume targets in 2008, Keelung port is expecting another rough year ahead.

The port forecasts a throughput of 1.96m teu for 2009, 13% lower than this year's target of 2.26m teu, already regarded as unattainable when the port released its first-half figures.

A dampened transpacific trade inthe past two months has crushed hopesof the second largest boxport on the island breaking its throughput record twicein a row, Keelung Harbor Bureau director-general Hsiao Ding-Hsun told Lloyd'sList.

The port handled 1.07m teu in the first six months of this year, 6,400 teu fewer than in the same period last year.

Meanwhile, Keelung's business is moving elsewhere:

Just 38 nautical miles away with a deeper draught of 16 m, Taipei Port Container Terminal, a joint venture between Evergreen, Wan Hai Lines and Yang Ming Marine, is due to open in January 2009. In a study last year, the Taiwan Ministry of Transportation and Communications estimated that the new facility will take 452,000 teu away from Keelung port.

As yet another article today notes, Taipei port is also impacting Kaohsiung:

THE list of container terminals in north Asia that are targeting transhipment cargo includes Shanghai, Busan, Ningbo, Qingdao and Xiamen. If the sector is not crowded enough, mind you, Taipei port will join soon.

This implies that Kaohsiung port, with 51% of its throughput being transhipment goods, faces a scenario in which half its volume is coveted by its eager neighbours.

The utilisation rate of the eighth busiest boxport in the world and Taiwan's top port reached 100% last year. With a designed capacity of 10m teu a year, the port handled 10.26m teu in 2007.

Kaohsiung's priority should be adding new capacity before its clients conveniently go to its neighbours for empty berths. The port apparently has got the point, but new facilities are about two years from being ready.

Yang Ming Marine Transport, the second largest carrier in Taiwan, has won a 50-year concession to develop four berths on 75 ha of land in the sixth container centre of Kaohsiung port. The additional 1.5 km of quay will add 2m teu of handling capacity to the port.

Construction of the first two berths, which started last December, is scheduled to be completed by 2010, while the remaining two will be available in 2013.

The new Taipei Port under construction.

Finally, the changes in the island's logistics markets caused by Taipei Port are discussed in some depth. The port, at the entrance to the Tamshui River northwest of Taipei, is affecting the entire island:

THE opening of Taipei Port Container Terminal, backed by Evergreen Marine, Wan Hai Lines and Yang Ming Marine Transport, on January 1 next year will change the logistics landscape in Taiwan.

The new port will help shippers save more than NT$10bn ($327m) of inland transport costs a year. Around 40% of imported and exported cargoes in Taiwan come from, or are destined to, the northern and central parts of the island. But not all of them can be shipped or unloaded at Keelung Port, whose relatively shallow draught of 12 m-14.5 m cannot accommodate containerships over 5,500 teu.

More than 1m teu of containerised cargoes are thus being trucked between Kaohsiung and northern and central Taiwan, said president of TPCT Chen Hau-Gi. He added that it costs NT$7,000-NT$8,000 per teu to carry those boxes between northern Taiwan and Kaohsiung.

Moreover, the new facilities will have little difficulty in attracting carriers and cargoes with the backing of the three lines.

Largest shareholder Evergreen Marine, with a 50% stake in the port, has no dedicated terminal at nearby Keelung port and plans to have 12 services calling at the Taipei terminal in its start-up stage, according to Mr Chen. Asia-Europe and transpacific services will make up the majority of the services with the rest being intra-Asia.

Wan Hai Lines and Yang Ming Marine Transport have dedicated terminals in Keelung port. Wan Hai holds 40% of the shares in the joint venture, with the remaining 10% belonging to Yang Ming. Wan Hai is planning to have two near-ocean services calling Taipei at the beginning, said Mr Chen.

Taiwanese officials often complain that Kaohsiung's place in the world port rankings is falling. It is hard to imagine how it could be otherwise, with new growth in Shanghai, Busan, and elsewhere. Now the port in Taipei, well-placed to serve Taiwan's rapidly growing northern region, is another regional competitor. Expect Kaohsiung's place to continue to fall.

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