BMI sees a moderate-to-strong outlook for Taiwan's freight transport sector. The local economy has solid fundamentals, with growth led by private consumption and net exports. Growth is, however, expected to be constrained by some negative factors: we expect the local property market to soften, the Chinese economy to lose pace, and the after-effects of the Japanese earthquake in March to reduce demand from that important trading partner. As a result, our overall forecast for Taiwan's GDP this year stands at 4.3%, compared to the exceptional 10.8% registered in 2010.
We note, however, that Taiwan's foreign trade will grow at 8.5% in real terms this year, providing continuing demand for shipping, aviation, and port services. The freight sector is dealing with a range of positive and negative factors. Among the negatives, low box rates in the container shipping business, combined with high fuel prices, will create a squeeze on margins. Among the positives, the healthy development of intra-Asian trade creates opportunities for Taiwan's shippers; so too does the expansion of cross-Straits trade with the mainland economy.
Headline Industry Data
.. 2011 Port of Kaohsiung tonnage throughput growth forecast is 1.92% and is expected to average 1.9% a year to 2015.
.. 2011 air freight tonnes growth forecast is 3.8% and is expected to average 3.8% a year to 2015.
.. 2011 rail freight growth forecast is 6.03% and is expected to average 4.2% a year over our forecast period.
.. 2011 road freight growth forecast is 6.5% and is expected to average 4.3% a year to 2015.
.. 2011 total trade real growth forecast is 8.45% and is expected to average 5.7% through to 2015.
Key Industry Trends
Rail Poses Alternative For Taiwan Iron Ore
The Taiwan Railway Administration (TRA) is involved in talks to move iron ore from the north to the south of the country by rail, instead of by road. The plan is to use the Hualien Port Line to ship the iron ore down to Kaohsiung Port in the south for China Steel Corporation (CSC). This would replace the current method, based on using heavy trucks on the accident-prone Suhua highway, which was badly damaged by landslides last year.
Cross-Straits Flights To Increase Again Taiwan and China said in May that they were planning to increase the number of cross-straits flights to 500 a week, up from 370 at present, in response to growing demand for passenger and freight travel. The number of mainland Chinese visiting Taiwan rose by 67% to 1.63mn in 2010.
China's COSCO Prepares Kaohsiung Investment China Ocean Shipping Group Co (COSCO) is set to become the first mainland business to invest in Taiwan's port sector. The shipping line was reported to be discussing a joint investment in the Kaohsiung port with locally-based Yang Ming Marine Transport. Talks were said to be based on COSCO taking a 40% share in a container terminal at Kaohsiung.
Key Risks To Outlook
BMI believes one of the main risks to our outlook is political, linked to the joint presidential and legislative elections scheduled for January 2012. Our analysis is that following the nomination of Tsai Ing-wen as the opposition Democratic Progressive Party (DPP) candidate, the presidential race against incumbent Ma Ying-jeou of the Kuomintang (KMT) is too close to call. The KMT favours close cross- Straits relations with mainland China, while the DPP is traditionally pro-independence. Our core view is that on this issue the gap between the two parties is beginning to narrow, meaning that a reversal in cross- Straits economic relations is unlikely, regardless of the elections results. The risk, however, is that we might be wrong on this. It is possible that opinion will polarise and the election campaign will be seen as calling into question the economic rapprochement with the mainland. In that scenario we think the port and shipping sector will take a 'wait and see' attitude, postponing investments and expansion plans - a move which will lead to lower growth rates.
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