Downside From Transhipment And China Exposure

The continuing increase in shipping connections between Taiwan and China, a process that kicked off in 2008 under the Three Links agreement, offers growth options for Taiwan's main container port of Kaohsiung. However, it also further increases Taiwan's reliance on China's growth story, which is set to be a curse as well as a blessing for Taiwan's port sector.

This quarter has once again highlighted the increased shipping connections between China and Taiwan, with the first ever direct container shipping route between the Chinese port of Guangxi and Taiwan launched in May. The service, which calls at the Taiwanese port of Kaohsiung, has now cut the shipping time between the two ports from 7 days to 3.5 days, with the route plied by a 610TEUs vessel.

The new route follows a trend BMI has been tracking since the 2008 Three Links agreement, with shipping links and maritime joint ventures between Taiwan and China taking off. These new routes and Chinese investment in Taiwan's port sector offer the potential for robust growth in Taiwan's port throughput, but BMI warns that the slowing growth in China and Taiwan is heavily reliant on the state for its trade also exposes Taiwan to the projected slowing in China's growth story

China is Taiwan's main trade partner, accounting for 28.1% of Taiwan's exports and 14.2% of the country's imports. China is Taiwan's largest export partner and second largest import partner after Japan, thereby tying Taiwan's fortunes to China's growth outlook.

Heavy China Exposure
LHC: Taiwan Export Partners % of Total 2010. RHC: Taiwan Import Partners % of Total 2010

Although BMI projects the Chinese economy to continue expanding over the medium term we forecast the growth outlook to slow. In 2013, we predict China's real GDP to grow by 7.5%, down on the 7.7% recorded in 2012, which in turn was down on the 9.1% expansion in 2011. Over the medium term (2013-2017) we project China's economy to grow by an annual average of 6.4%; this is considerably slower than the country's previous five years average annual growth of 9.2%.

Slowing Growth Outlook A Worry
China Real GDP % Change y-o-y

With China as its main destination for its exports Taiwan will be impacted by this slowing in growth. At the port level the key area that is most exposed is container operations. Although the port of Kaohsiung's container throughput is relatively balanced, with container imports accounting for 49.9% of the ports total container throughput in the first five months of 2013 and exports accounting for 50.1% the ports exposure to China, specifically its transhipment role, is already starting to weigh on the facility's box throughput.

Kaohsiung's role in the container transhipment sector also exposes the port to the global box shipping outlook, with the facility featuring as a port of call on the major container trade routes of Asia-Europe and the US. This role therefore exposes the port to a plateauing and declining growth outlook in 2013. BMI forecasts US growth to plateau in 2013, with real GDP forecast to expand by 2.1% following a growth of 2.2% in 2012. On the Asia-Europe trade route, demand is declining on the back of a second consecutive year of recession in the eurozone, with the region's economy projected to contract by 0.3% in 2013 a further decline on the 0.6% in 2012.

Transhipment Exposed To Choppy Waters
US and Eurozone Real GDP growth, % change y-o-y

BMI highlights that Taiwan's exposure to the slowing Chinese growth story, coupled with the port of Kaohsiung's role a as container shipping hub, is already having an impact on the facility's box throughput. In the first five months of 2013 container throughput at the port of Kaohsiung plateaued with 0.0% growth, this marks a slowing on the 2% y-o-y growth recorded in the same period in 2012.

The slowing in growth at the port in the January-May 2013 period has led BMI to revise down its throughput forecasts for the full year. Previously we predicted container throughput at the port to grow by 2.7%, we have now revised that down to a growth of 1%, marking a slowing on the 1.5% growth recorded at the port's box operations in 2012. We now forecast that the port will handle 9.88mn TEUs in 2013.

Box Throughput Slowing
LHC: Port Of Kaohsiung Container Throughput % Change y-o-y Jan-May 2012 and 2013. RHC: Port Of Kaohsiung Container Throughput & % Change y-o-y

The port of Kaohsiung's tonnage throughput is more heavily exposed to Taiwan's import sector, but as this sector is projected to record stronger growth than the country's exports y-o-y on the back of a more positive domestic growth outlook, BMI is still forecasting total tonnage throughput at the port to decline.

Taiwan is resource-poor and so is reliant on imports to meet its fuel and power needs. This reliance is highlighted by the tonnage data breakdown at the port of Kaohsiung. In Q113 (latest available data) the port of Kaohsiung's total tonnage imports accounted for 69.7% of the port's total tonnage total, with exports accounting for just 30.3%.

Import Heavy...
Port Of Kaohsiung Total Tonnage Throughput Jan-May 2013 Import & Export % of Total

This heavy exposure to Taiwan's export sector should in theory protect the port's total tonnage throughput growth outlook, with BMI projecting Taiwan's imports growth to outperform that of the country's exports in 2013 with growth projected to be 3.5% and 3.3%, respectively. Taiwan's imports are set to benefit from the uptick in Taiwan's economic growth outlook, with BMI projecting the country's real GDP to expand by 3.0% in 2013 up on a growth of 1.3% in 2012. Despite this comparatively stronger import growth outlook, total tonnage throughput at the port remains in decline.

... But Not Benefitting From Strengthening Fundamentals
LHC: Taiwan Real Import & Export Growth, % Change y-o-y. RHC: Taiwan Real GDP Growth, % Change y-o-y

In Q113 total tonnage throughput at the port of Kaohsiung fell by 1%. This we highlight is a weaker decline than the 4% drop in total tonnage throughput that was recorded at the port in the same period in 2012. This weakening in decline is highlighted in BMI's full-year throughput for the port's total tonnage for 2013. We are holding with our prediction of a decline of 1.5%, which will take total tonnage throughput at the port down to 118.9mn tonnes in 2013. This decline is, however, not as steep as the 2.6% dip recorded in throughput in 2012 when total tonnage volumes fell to 120.8mn tonnes.

Decline Slowing
LHC: Port Of Kaohsiung Total Tonnage Throughput, Jan-May 2012 & 2013 (% Change y-o-y). RHC: Port Of Kaohsiung Total Tonnage Throughput (tonnes & % Change y-o-y)
This article is tagged to:
Sector: Freight Transport, Shipping
Geography: Taiwan

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