Taiwan Shipping Report Q3 2012

We are expecting lower GDP growth in Taiwan this year, having cut our forecast to 2.1% growth after 4.0% expansion in 2011.

There are signs that a recovery cycle is beginning, but we think it will take some time to gather pace, against the influence of global headwinds, slower growth in mainland China, and rising fuel and electricity tariffs at home.

By next year the pace will accelerate again - we are projecting 5.1% GDP growth.

Slower growth this year will have a fairly significant impact on port and shipping activity.

Data for the first months of 2012 confirms that lower levels of international trade are making their impact felt.

At Kaohsiung, Taiwan's largest port, the tougher conditions mean we now expect bulk tonnage to contract a little in 2012, while container growth there will be brought to a virtual standstill.

At Keelung, the country's second largest port, the downside will be more severe, with double-digit percentage falls in both bulk tonnage and box traffic.

Despite this fairly gloomy short-term outlook, the policy of cross-straits integration continues to hold out considerable upside for Taiwan's ports and shipping lines.

The re-election of President Ma Ying-jeou in January of this year as the head of the Kuomintang (KMT) party indicated that this policy will continue, most likely for another four years.

Further liberalisation of relations between the two economies remains on the cards.

In this context Taiwan's ports and shipping lines are positioning themselves to work through a series of alliances and partnerships with mainland companies over the next few years.

Headline Industry Data

2012 Port of Kaohsiung tonnage throughput forecast to contract by 2.0% to 121.453mn tonnes, over the mid-term we project an annual average increase of 0.9%.

2012 Port of Kaohsiung container throughput forecast to grow 0.4% to 9.678mn TEUS, over the mid-term we project an annual average 2.9% increase.

Port of Keelung will see tonnage contracting by 13.2% in 2012 to 65.464mn tonnes, with container traffic down by 12% to 1.54mn twenty-foot equivalent units (TEUs).

2012 total trade growth forecast at 0.9% in real terms, compared to 1.9% in the preceding year.

Key Industry Trends Kaohsiung Seeks Upside in LME Deal The Port of Kaohsiung's plans to develop into a hub for the London Metal Exchange (LME) are moving forward, with Li Tai-hsing, the president of Taiwan International Ports Corp, visiting the exchange in London to announce that Taiwan's government has decided to grant it exemption from business income tax for metal trading.

BMI expects the LME to move forward with plans to develop a delivery point at the Port of Kaohsiung with complementing storage facilitates.

Although the vast majority of trades done on the LME are for hedging purposes, the exchange does boast storage facilities around the world.

The LME's patronage offers to increase the facility's cargo throughput by 10mn tonnes per year.

Evergreen Performs U-Turn On Container Ship Size Evergreen is preparing to order a fleet of 14,000 twenty-foot equivalent unit (TEU) ships, a considerable change of strategy for the shipping line, which has previously vowed not to operate mega vessels.

The company's U-turn is likely due to its decreasing market share, as its rivals bring on bigger ships, but Evergreen's strategy to wait is also likely to pay off, as the company will expand its fleet at a bargain price.

Evergreen is set to sign a deal for 10 14,000TEU ships, which it will charter from Korea Infrastructure Investments Asset Management for between eight and 12 years.

The order is likely to be placed at South Korea's Hyundai Heavy Industries (HHI).

There is no news yet as to when these planned vessels would be ready to launch.

An 18-month lead time is usual, with the earliest these planned vessels could start entering Evergreen's fleet estimated for the second half of 2014.

Wan Hai Gets Interested In The Transpacific Although it has successfully concentrated on intra-Asian trade routes, Wan Hai Lines decided to boost its exposure to the transpacific trade route, launching a new service to connect Chinese ports with the US West Coast (USWC) port of Long Beach.

The new Calco-B route, offered jointly with Japan's Kawasaki Kisen Kaisha ('K' Line) may be designed to take advantage of growing box rates on the route.

According to the Shanghai Containerised Freight Index (SCFI), rates on the transpacific ticked up by 12.67% to US$2,285 per forty-foot equivalent unit (FEU) for the week ending April 13 2012, a year-on-year (y-o-y) increase of 39.4%.

Risks to Outlook The high-tech electronics industry that underpins much of Taiwan's growth can be volatile, and dependent on the economic health of mainland China.

Indeed, lower growth on the mainland has been one of the factors causing us to peg back both our GDP and port activity forecasts for Taiwan since our last quarterly report.

Therefore, we must list a greater-than-expected slowdown in foreign trade as the main downside risk to our forecasts.

Taiwan's main trading partner registered zero import growth in April and given the mainland's weak fundamentals, we continue to expect further economic weakness, thus placing further downward pressure on Taiwan's export sector.

Against this there remains a more medium-term upside risk in the form of Chinese interest in Taiwan's ports and expansion projects at its facilities.

Given the comparative sizes of the two economies, a 'small' Chinese investment in Taiwan's ports can be of major significance to the whole sector.