VZCZCXRO8540
RR RUEHCN RUEHGH
DE RUEHIN #1937/01 2360146
ZNR UUUUU ZZH
R 240146Z AUG 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6509
INFO RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUCPDOC/USDOC WASHDC
RHMFIUU/US CUSTOMS AND BORDER PROTECTION WASHINGTON DC
RUEHBJ/AMEMBASSY BEIJING 7157
RUEHCN/AMCONSUL CHENGDU 2048
RUEHGZ/AMCONSUL GUANGZHOU 0481
RUEHGH/AMCONSUL SHANGHAI 1299
RUEHSH/AMCONSUL SHENYANG 6017
RUEHHK/AMCONSUL HONG KONG 8412
RHHMUNA/USPACOM HONOLULU HI
RUEHML/AMEMBASSY MANILA 0125
RUEHGP/AMEMBASSY SINGAPORE 6974
RUEHKO/AMEMBASSY TOKYO 9007
RUEHUL/AMEMBASSY SEOUL 8844

UNCLAS SECTION 01 OF 03 TAIPEI 001937 
 
SIPDIS 
 
DEPT FOR EAP/RSP/TC AND EB/TRA 
USDOC FOR 4330/ITA/MAC 
CBP FOR CARLOS CORTEZ AND VINCENT HUANG 
HONG KONG PASS TO CBP REPRESENTATIVE/R. POWELL 
 
FROM AIT KAOHSIUNG BRANCH OFFICE 
 
SIPDIS 
 
E.O. 12958:N/A 
TAGS: EWWT ETRD PGOV ECON TW ELAB
 
SUBJECT:  Port of Kaohsiung's Container Volume Eclipsed by Mainland 
Port Growth; Struggles to Maintain Transshipment Business 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (U) Summary.  With geographic advantages and new long-term leases 
from major shipping carriers, Kaohsiung will likely hold on to its 
status as a transshipment hub in the Asia-Pacific region, even as it 
continues to fall behind in world rankings.  The completion of a 
s)QD'Qolume is expected to reach at least 10 million TEUS by 
the end of 2007, if not sooner.  At the same time, Shanghai, 
Shenzhen, Dubai, Qingdao, Ningbo, Tianjin, and Guangzhou have surged 
ahead in recent years, boasting annual growth rates between 10% and 
40%. 
 
¶3. (U) Taiwan authorities are undertaking mixed measures to boost 
the Kaohsiung harbor area's economy.  According to Marco Lin of the 
Kaohsiung Urban Development Bureau, the future of Kaohsiung Harbor 
will also include leisure and tourism facilities.  The redevelopment 
initiative comes at a time when traditional industries like 
agriculture and manufacturing are moving to China and Southeast Asia 
due to lower labor costs.  However, harbor-area unions argue that 
the selected piers are curretly operating at near full-capacity and 
should be reserved for shipping use.  Kaohsiung will also soon begin 
building its sixth container terminal, set for completion in 2014. 
Unlike Kaohsiung's other container terminals, Terminal No. 6 will 
have offshore status and be able to accommodate the 
sixth-generation, large vessels that require at least 15 meters of 
water to dock.  Acquiring large vessel capabilities will help 
Kaohsiung adapt to changing shipping carrier needs, especially since 
most of Kaohsiung's Chinese competitors and Dubai already possess 
these capabilities. 
 
Strong Mainland Economic Growth Driving Port Competition 
--------------------------------------------- -------- 
¶4. (SBU) According to National Sun Yat-sen University Professor Hu 
Nien-tsu, Terminal No. 6 will help boost Kaohsiung Port's container 
volume, but this project is neither sufficient nor timely enough to 
compete with the double-digit growth of other ports, particularly on 
the mainland.  China's lower labor costs, large hinterland, 
logistics centers, and booming export market account for the Chinese 
ports' explosive growth.  Additionally, Dr. Hu believes that 
Shanghai's location in the middle of China's coastline, its banking 
and insurance sectors, and its previous glory as the hub of commerce 
between East and West will enable it to surpass Hong Kong and become 
the world's largest container port in the next year or two.  On the 
other hand, Kaohsiung Harbor Bureau (KHB) Director Hsieh Ming-tui 
contends that Xiamen is likely to be Kaohsiung's biggest competitor 
for the near future, as Shanghai is both too far away and too 
focused on local shipping to directly challenge Kaohsiung.  In any 
event, Mr. Siew Loong Wong, Managing Director of American 
Presidential Lines (APL) Taiwan, believes it is unlikely Kaohsiung 
will remain in the top ten rankings for much longer. 
 
 
TAIPEI 00001937  002 OF 003 
 
 
¶5. (SBU) As China's economic growth continues to catalyze its port 
growth, the cross-strait ban on direct shipping is preventing 
Kaohsiung and other Taiwan ports from achieving economies of scale. 
According to David Chien-Yu Cheng of the KHB, direct shipping would 
lower the costs borne by shipping companies, as vessels would no 
longer have to go through a third port like Hong Kong or Pusan. 
However, Dr. Hu asserts that lifting the ban would be necessary but 
insufficient for Kaohsiung to increase its container volume beyond 
10 million TEU, even when Terminal No. 6 is complete.  Aggressive 
mainland tactics may even cause Kaohsiung's container volume to 
decline in the future.  Mr. Wong informed AIT that mainland ports 
are approaching shipping carriers and "poaching" their business from 
Kaohsiung. 
 
Local Pressure from New Port in Taipei; Limited Success from FPZ 
--------------------------------------------- -------- 
¶6. (U) Additionally, Kaoshiung Port faces potential local cargo 
shipping competition from the new port being constructed in the 
Danshui area of Taipei, although AIT interviews indicate that the 
port is primarily intended to reduce existing inefficiencies in 
local cargo movement, as well as to eventually replace the Port of 
Keelung in the north.  According to Mr. Hsu of Evergreen Lines' 
Investment Division, because most of the local cargo currently 
shipped through Kaohsiung comes from the central and northern part 
of the island, the Taiwan government's decision to build the Taipei 
port is based on a desire to minimize transportation costs, time 
delay, and environmental effects of moving cargo across the island 
by truck.  Indeed, Mr. Chang Ya-fu of KHB's Port Development Section 
believes that the new port will not significantly challenge 
Kaoshiung for resources, as the central government will find ways to 
balance the north and south. 
 
¶7. (U) However, the new port may put pressure on Kaohsiung by 
absorbing new investment.  Major Taiwan shipping carriers Evergreen, 
Wan Hai, and Yang Ming were jointly awarded investment rights in the 
Build-Operate-Transfer (BOT) Taipei port, set for completion in 
2009, whereas Yang Ming remains the sole bidder for Kaohsiung's 
Terminal No. 6.  Attracting shipping carrier investment during a 
time of restructuring and comparatively weaker growth remains a 
crucial concern for Kaohsiung.  Dr. Hu explains that if Kaohsiung 
cannot retain big shipping companies for at least ten years at a 
time, such companies will see no reason to invest in the port. 
 
¶8. (U) The designation of 397 hectares of land at the harbor as a 
Free Trade Zone (FTZ) in January 2005 has also brought little new 
business or investment to Kaohsiung.  According to Mr. Hsu, the FTZ 
began as a way to get value-added profits from tax-free goods 
transshipped through Kaohsiung, but labor costs and exchange rates 
in China's favor are diverting such goods away from Kaohsiung. 
Meanwhile, logistics warehouses in Kaohsiung remain unused, and the 
FTZ's limited area cannot accommodate any additional companies.  The 
Taipei American Chamber of Commerce also argues that an FTZ outside 
this current area makes more sense, as the port is already 
duty-free. 
 
Kaohsiung Clings to Natural Advantages; Maintains Business Ties 
--------------------------------------------- -------- 
¶9. (U) Despite these challenges, Kaohsiung still offers the shortest 
links to the Asia-Pacific region's five leading ports (Hong Kong, 
Pusan, Shanghai, Singapore, and Tokyo) by an average of 53 hours of 
navigation time.  This strategic position will likely bring 
Kaohsiung transshipment business for years to come.  Indeed, 
Evergreen, APL, Wan Hai, and NYK recently signed new ten-plus year 
leases with Kaohsiung.  Mr. Hsu of Evergreen told AIT that his 
company intends to keep Kaohsiung as its transshipment hub despite 
its investment in the Taipei port because there is sufficient cargo 
for both areas, and also because Evergreen has previously invested 
in Kaohsiung. 
 
 
TAIPEI 00001937  003 OF 003 
 
 
¶10. (U) In addition to container volume, Mr. Wong of APL claims that 
investors also consider the size of a port's hinterland in 
determining its vitality.  Kaohsiung offers a larger natural port 
area than that of Taipei's, translating into more opportunities for 
future development.  Furthermore, Mr. Hsu of Evergreen claims that 
the shipping business has acclimated to globalization, in that 
sovereignty issues do not preclude joint ventures between mainland 
and Taiwan shipping carriers, even as the direct shipping ban 
remains in effect.  Locally, Kaohsiung is currently working on 
lowering tariffs, rental charges, and streamlining bureaucratic 
procedures to retain its shipping carrier business.  According to 
Ms. Mak of OOCL, KHB has lowered costs for inbound containers 
carrying refrigerated cargo, consumer products, and European 
products; these are expected to comprise Kaohsiung's new source of 
business. 
 
Comment 
--------------------------------------------- --------    11. (SBU) 
If Kaohsiung continues to sign long-term leases with major shipping 
carriers and improves certain efficiencies, its continued presence 
as a transshipment hub in the Asia-Pacific region appears viable. 
At the same time, Kaohsiung appears focused on attaining the 
full-service logistics hubs that currently characterize ports like 
Shanghai.  The redevelopment projects may also create a more vibrant 
local economy that attracts investors, personnel, and businesses 
with new capital to invigorate Kaohsiung's harbor area in coming 
years. 
 
THIELE 
 
YOUNG