TAIWAN’S SHIPPING INDUSTRY SAILING AT FULL STEAM
The establishment of the Taiwanese Free Trade Zones
in 2004, which began with Port Keelung in the north of the island, has proven to be one of the many groundbreaking maneuvers which made of Taiwan an international development success story. Among the numerous policies put forward in previous decades as engines of economic growth, the creation of the FTZ is certainly among the most influential, as not only has it had tremendous impact on the economy of the country, but also on the global shipping industry itself.
The strategic geographical position of Taiwan as a gate to China and the Asia-Pacific region for trade coming in from the west, allowed for the formation of integrated chains of production and an overall rise in shipping standards, cost effectiveness and operation services, and also for the restructuring of major commercial routes directed at the growing China market. This became a particularly promising possibility for trade when in 1997, after a protracted negotiation between the two governments; direct sailing was introduced across the Taiwan Strait. Originally in the hands of ten Chinese and Taiwanese shipping companies, trade along this route has since expanded notoriously and has grown to become one of the most successful commercial relations in container transport, mainly due to the strategic role of the Port of Kaohsiung.
In 2005, accordingly, four more ports were established at Taoyuan International Airport and the international harbors of Taichung, Taipei and Kaohsiung, the last of which has grown to become a major international port hub. Together, the seven locations that make up Taiwan’s FTZ have been able to offer notorious global distribution advantages in transshipment, design, manufacture and warehousing, and have played a key role in international trade, particularly since the unification of management operations in 2012, under the direction of the Taiwan International Ports Corporation.
Taiwan International Ports Corporation
The Taiwan International Ports Corporation (TIPC) was established on March 1ST 2012 to take in charge of the main management functions of the four Harbor Bureaus that is the operation of all international commercial ports of Taiwan. The idea behind this major restructuring was to improve the effectiveness and flexibility of port operations under the previous Harbor system through business-oriented operations, a task which according Mr. Men-Feng Wu, Chairman of TIPC, the corporation has not only accomplished but largely surpassed. By delegating the maritime, supervision and port policy functions to its sister institution, the simultaneously created Maritime and Port Bureau (MOTC), they TIPC has been able to “fuel renewed port growth and expansion, and to stimulate local economic and industrial prosperity”.
TIPC is a nation-owned enterprise and administers all business aspects of the four subsidiary organizations of the Ports of Keelung, Taichung, Hualien and Kaohsiung, as well as their associated facilities and auxiliary ports, such as Su-Au, AnPing and Taipei Port. The latter, Kaohsiung Port, is the main transshipment hub in Taiwan and the world’s 13th largest container port. Located in Southern Taiwan, the port enjoys great proximity to Siaogang International Airport, several industrial parks and to the Southern Taiwan Science Park, a hub of the biotech industry in the country. It offers the most advanced warehousing facilities and multi-temperature layer of frozen logistics, and the annual cargo volume handled in Kaohsiung Port has exceeded10 million TEU (twenty-feet-equivalent units) ever since 2014. The port is expected to maintain its record performance in the following years, and Mr. Wu is confident that itsachievements “can be attributed to the advantages of Taiwan’s low costs, ideal geographic location and high-quality labor”.
Is nevertheless not complacent about its early successes, and is thus embarking on a number of large-scale projects directed not only at furthering its business capabilities, but also at leading a growing tourism and cruise-ship industry. For this reason TIPC has injected nearly US$ 1 billion into the CT7 project at Kaohsiung Port, a Container Terminal composed of five berths of 18 meters in depth along a 2,415-meter-long quay built over 147 hectares of reclamation land. The project will be carried out in two phases, the first one of which will focus on the development of 1.185 meters of quay over 76 hectares of hinterland. On its completion in 2018, says Mr. Wu,“it will be the most advanced container terminal, handling 4.5 million TEU per year”.
Only one year later, the port is scheduled to launch the New Kaohsiung Passenger Terminal and Cruise Service Center, which will be able to accommodate two simultaneous 225,000-ton cruise ships and welcome 2000 passengers per hour through its facilities. Based on TIPC’s forecast, there will be more than 600 ships call to Taiwan, and total cruise passengers will reach 1 million in 2017. Taiwan is indeed enjoying an increasing popularity as an international cruise destination, represented by a 28% growing rate in outbound passengers last year which numbered a total of 750,000, and for that reason TIPC is adamant on expanding its infrastructures in order to rejuvenate the domestic cruise industry. “The new facilities”, explains Mr. Wu, “will expedite the arrival and departure of passengers, and help them make the most of their time at the port through new water recreation facilities, while at the same time stimulating new business opportunities in cooperation with local governments”.
But the road is not without its challenges. Taiwan’s import and export volume has been experiencinga certain decline over the past few years, a problem which experts attribute to the rapid development of the country’s economy. By boosting capital and technology-intensive industries, rapid economic growth has had a negative impact on traditional and labor-intensive industries, as they are forced to divert in the search for lower costs. In order to reduce the cost of shipping, carriers have places megaships on east-west routes, and taken advantage of vessel slot-sharing in order to meet their loading space requirements. “As demand for larger and fewer hub ports grows” explains Mr. Wu, “international ports continue to construct deep-water terminals, upgrade handling equipment and devise strategies to attract the liners’ megaships into their ports”. TIPC is thoughtfully aware that its future success will depend on their ability to attract transshipment cargo and routes, and to offer competitive and cost-effective services that will place it ahead of other international ports.
Nevertheless, Mr. Wu is confident about TIPC’s ability to navigate through such difficulties.The company, in his opinion, has a unique and innovative approach towards contingency, as it is aimed “not only at maintaining a steady development for our core business, but more importantly at adapting, through diversification, to the changes in global economy and in the shipping industry itself”. On the one hand, thus, TIPC will aggressively implement all its major projects and plans, such as providing an integrated chain of services including stevedoring, container terminal operations, harbor craft services and logistics. The scope is to provide a friendly and safe operation environment, highly efficient services for customers and a key balance between sustainable development and the protection of the environment. TIPC has in fact begun the rigorous EcoPort certification process in 2013, implementing an environmental management system which has significantly reduced the environmental impact of port activities. Ports Kaohsiung, Taichung and Keelung have all been certified, and Ports Hualien and Taipei have accepted an on-site audit by the ECOSLC and expect to be certified by EcoPort by the end of the year.
On the other hand, it will aim at enhancing its ability to cooperate with international enterprises, in a move to accelerate the ports’ participation in the globalized economy, and turn them into indispensable players. “Our business principle is ‘customer-oriented’”, explains
TIPC HAS BEEN ABLE TO FUEL renewed port growth and expansion, and to stimulate local economic and industrial prosperity. REPRESENTING APPROXIMATELY 15% of market share in the region, Wan Hai Lines ranks number one in both services coverage and sailing frequencies in Asia.
Mr. Wu, “and so our goal is to cooperate with our customers in order to create a mutually profitable and overall favorable business environment”.
Such international partnerships have in fact already proven to be one of TIPC’s strongest suits, as theyhave already secured deals with numerous international players. Among its most successful collaborations is that with major Japanese enterprise Mitsui, who will establish an outlet park in the Port of Taichung built over 18 hectares of land and including a shopping mall, office buildings, exhibition hall, conference center, dining and healthcare facilities, harbor staff service and other affiliated facilities. “The park is projected to open in 2018”, adds Mr. Wu, “and in conjunction with the beautiful area around Taichung harbor, which is still open for investment, will greatly develop tourism along the coastline”.
Currently, Kaohsiung Port handles 19 different trans-pacific routes, ten of which call to the West Coast of the US. Apart from national carriers such as Evergreen and Yang Ming, other carriers like OOCL, APL and Hyundai also lease terminals in Kaohsiung Port. This is due to the ports’ exceptionally convenient location, close to the Mainland China Market and the center of Asia, which allows for a highly efficient operation for US goods. Nevertheless, Taiwan’s FTZ also provide strong goods-handling and warehousing infrastructure, a rapid customs-clearance process, a well-established and diversified manufacturing base and a comprehensive B2B infrastructure, which make it very convenient for global enterprises to establish their distribution center in the FTZ and consolidate their critical trade, logistics and information flows. “For example, adds Mr. Wu, an American auto part company has cooperated with a Taiwan logistics service provider to collect and consolidate all the parts and materials manufactured in China and Southeast Asia at the Port of Kaohsiung and then distribute them to the required destinations, mainly on the US West Coast”. They have established a successful business model by utilizing the Port’s efficient container operation and convenient warehousing facilities, which allow for a low-cost and highly efficient operation.
In fact, Kaohsiung Port has become the hub for both South-North and East-West bound shipping markets, and this is why TIPC is currently looking for partners, especially carriers and terminal operators, to join one of their most ambitious projects so far, the Intercontinental Terminal Phase II, already under construction and which according to Mr. Wu, “is an ideal target for carriers to invest in and use as their trans-shipment base”.
Its role as a springboard for US enterprises onto the mega market of Asia, and particularly of China, which has become one of the most important consumer markets and manufacturing bases, is where Mr. Wu believes lies the future of TIPC. Taiwan plays a very important role as supplier of intermediate goods and components within the Asia-Pacific region and has a close trading relationship with Trans-Pacific Partnership members, particularly focused in the product categories of fabricated metal, textile, automotive, machinery, iron and steel. At least 10% of the intermediate goods needed by US manufacturers are imported from the region by way of Taiwan. Together with a very close industrial relationship between the two countries that has been stable for years, this makes partnership with the US a very promising venture. “Taiwan is a perfect strategic geographical choice”, Mr. Wu explains,“We boast the strongest shipping routes connecting the US to Asia, the finest warehousing, and the capability to handle logistics and value-added processing with high efficiency and reasonable costs”. By welcoming US enterprises to be their business partners and offering them the best services and a devoted team, Mr. Wu is certain they will be able“to help them stand strong in Asia and springboard to the world”. “TIPC stands on a solid foundation and on a spirit of innovation, and we are determined to leap very high”, concludes Mr. Wu showing true pride in his company: “We forecast a bright and promising future”.
Wan Hai Lines
In the extremely competitive world of cargo shipping, in which international markets grow and change at outstanding speeds, in which commercial routes are constantly shifting directions in the search for the most efficient combinations of port services and operations, Taiwanese carrier Wan Hai Lines has managed to stay not only afloat, but at the forefront of its industry. Founded in 1965 as a log shipping company mainly trading with Japan and Southeast Asia, Wan Hai Lines soon entered the business of container vessel shipping, in response to the rapid development of international trade in the Asia-Pacific region and the international trend in transportation towards what is commonly known as containerization. Today, the company operates through shipping services, shipping agency services, operation of port container stations and leasing and sale of ships and containers, providing full-container shipping and covering numerous international ports in all major port cities of Asia and in numerous hubs in North and South America, Eastern and Western Europe, Africa and the Middle East.
Representing approximately 15% of market share in the region, Wan Hai Lines ranks number one in both services coverage and sailing frequencies in Asia, an achievement which has endowed it with the epitome of the Asian specialists in transportation. Its 75 operative routs, covered by 83 vessels, call at 89 major international commercial ports, giving it the most comprehensive and intensive service network available in Asia. In a 2016 research survey that included the world’s top container liners, Wan Hai Lines came out first in schedule reliability. According to Chairman Mr. Po-Ting Chen, the company’s commitment to its customers is not only an added value, but “a fundamental part of our success”.
Achievements such as these come rare in a time in which the global economic slowdown of 2008, which affected many sectors of industrial production, has had a particularly worrisome effect on the international transportation of goods, hurting freight costs and reducing global demand for overseas products. Certainly the breaking point in this temporary crisis, which sent ports and carriers into confusion regarding the future of transshipment, was the plunging of South Korean shipping line Hanjin, a major player in the industry representing nearly 8% of the trans-Pacific trade volume for the US market and which filed for bankruptcy in September 2016, leaving tens of millions of dollars in goods stranded in ports all around the Pacific. The sinking of Hanjin had a ripple effect throughout the global supply chain and caused damage to both consumers and producers in the US. According to The Guardian, the company had been losing money for years, and its collapse was partly caused by a lack of regulatory control on the part of the Korean state and the state-run bank that led the company’s creditors.
As particular as this case might have been, it was nevertheless not an isolated incident, as it was shortly followed by the collapse of other Korean and Chinese carriers, and by a merger of the three largest shipping companies in Japan designed to avoid a similar catastrophe. The case was admittedly different in Taiwan, where the state offered two of the main shipping conglomerates facing trouble a relief package worth US$1.9 billion, showing that the administration recognized the difficulties faced by the industry and was prepared to lend its support. According to the Financial Times, the bailout of those shipping giants certainly helped to stabilize the whole industry in the face of global economic difficulties.
Such circumstances, nevertheless, do not wholly account for the resilience of companies such as Wan Hai Lines, who were not part of the relief package and yet were able to push through. According to Mr. Chen, the company owes its present position to a complex strategy that consists of a clockwork set of actions and decisions following three main general directives. “Firstly, in order to have a robust performance and a highly efficient operation, we must compete wisely and carefully”, explains Mr. Chen, whose company is used to competing with carriers that are much stronger in terms of economic scale, as that tend to be formed by very big conglomerates who have recently begun to team up as consortia and have thus grown considerably more powerful. The second key effort is flexibility. Statistics and information related to the shipping industry is not only dynamic, but also public. Therefore, it is paramount for the company to look beyond the numbers and devise a strategy for operation different form the ones most managements in the industry might choose, in order to stay ahead of unforeseen changes or circumstances. Such a strategy must nevertheless include the colleagues and collaborators of the company, on which relies the functioning of the whole system and some of which have been in partnership for more than forty years. The third key effort is thus maintaining the competitiveness of colleagues and collaborators. “The combination of these three factors”, explains Mr. Chen “has helped us immensely in becoming a strong and solid player in such a furiously competitive market”.
One particular instance in which Wan Hai Line’s strategy has already proven successful in outpacing competitors is in flexibility of operation. Currently the shipping industry is experiencing a relative halt in growth which has pushed alliances between carriers to be reshuffled and many new consortia to emerge. Mergers, takeovers and alliances between the larger liner shipping companies have allowed them to consolidate domination over the market by redeploying their fleets and reconfiguring and rescheduling their services. According to shipping scholar Kevin Cullinane, “this has led to a worldwide rationalization of container transport so that fewer and fewer container ports are called at directly by mainline vessels”.
Aggregately, such consortia will represent as much as 95% percent of the market share in the near future, and as such pose a considerable threat. Nevertheless, what lines may gain in lower costs and wider coverage by teaming up together, they may very well lose in flexibility of operation. And this is where Wan Hai Line’s tailored services and impeccable schedule reliability have made a difference. “For customers”, Mr. Chen explains, “service is almost the same among different carriers, but only independent carriers like us are able to provide the more compelling services required by particular customers”.
In an industry of large consortia and impersonal conglomerates, it all comes down to creating a company that customers can trust reason for which Wan Hai Lines has a strong commitment to both social responsibility and the environment.. Through Wan Hai Foundation, created in 2003, the company supports numerous activities and campaigns promoted by relevant international organizations and have made generous donations to areas hit by devastating catastrophes, such as Sichuan in China and Fukushima in Japan after the earthquakes. In these cases, they offered its vessels for delivering relief supplies to those in urgent need. In terms of the protection of the environment, the company has also invested in the future well beyond expectations or requirements of law, adopting the latest technologies to make its ships more environmentally friendly, monitoring pollution, carrying out a full implementation of an Environmental Management System, and requesting contractors and business partners to enhance environmental protection awareness through joint observation of environmental protection regulations. “We constantly strive to remain a trustworthy institution”, says Mr.Chen.
Certainly, a globalized industry such as shipping must act globally and take onto itself the concerns of the world as a whole, and along this responsibility also come broader challenges. Perhaps the most pressing one is that of geopolitics, and the current state of uncertainty regarding protectionism in international trade, and whether or not it will resurrect. “In my perspective”, says Mr. Chen, “no market can stay away from trading goods with others given that the supply chain is a highly exquisite mechanism and is borderless in today’s world”. In fact, experts agree on the fact that protectionism or an ensuing trade war could cause tremendous damage to the industry and affect thousands of consumers. So far, nevertheless, there have been no measures taken in that respect, nor have shipping activities been affected, despite numerous occurrences of protectionist policies being supported through elections. “We do not know how far protectionist measures can or will go, and we will not take any drastic actions until we can see a clearer picture”, says Mr. Chen. For the time being a more pressing matter is taking the attention of the management team, which translates into gaining a more solid foothold in the American market. Taiwan’s trading relationship with the US has gone through more and less difficult moments, but the US has continued to be an important trading partner for Taiwan, which depends on the success of that partnership to secure greater participation in global and regional trade and economic integration. In order to achieve continued growth in trade, Taiwan must maintain its important position within global supply chains and a standard of operation that will place it ahead of its competitors.
“The American market is definitely an important market to us”, Mr. Chen explains .“According to capacity deployment we now have less than 1.5% of the market share in the US West Coast, and we certainly want to increase that percentage in the long run”. In order to achieve this, Mr. Chen is confident they have to walk cautiously, follow carefully the flows of cargo and the market tendencies, and continue doing what Wan Hai Lines does best: cooperating with other carriers to diversify products, and keep their customers close by offering an outstanding service. “This is how we came to be where we are”, concludes Mr. Chen with a smile, “and why we come here every day to do the best we can”