Slightly Slower Growth In 2015
With economic growth and exports easing back marginally BMI believes activity levels at Taiwan's main ports will grow at a slightly slower 1.0%-4.0% this year. Box traffic at Taiwan's key ports will remain the most dynamic, but will not exceed 4% growth. Broadly speaking, Kaohsiung, Taiwan's largest port, remains the most resilient, not least because it is attracting new investment. Although political risk factors are beginning to rise, the policy of cross-Strait integration is expected to continue.
Taiwan's GDP growth picked up slightly in Q115 TO 3.5% year-on-year (y-o-y), up from 3.3% in Q414. We believe the main growth driver is domestic consumption, helped by lower oil import costs, but that the economy is being held in check by an otherwise more difficult external environment. In the first quarter consumption and exports contributed to growth, with government consumption and gross fixed capital formation in negative territory. Rising receipts from tourism, which the government wants to develop to diversify its reliance on manufactured exports had a positive effect. However, our view remains that taking into account its status as Taiwan's largest trade partner (accounting for 40.0% of total exports), the continued slowdown in mainland China's economy will continue to weigh on Taiwan's manufacturing export growth. Taiwan's export performance showed a degree of weakness in the first quarter, with exports shrinking by 8.9% y-o-y in March, registering the sharpest decline in three months (versus a contraction of 6.7% in February). As a result of these factors, we have held our 2015 GDP forecast steady at 3.5% growth, but are predicting real export growth this year at 4.7%, down from 5.7% in 2014. Our medium-term outlook is for growth to average 3.9% a year in the five years to 2019.
Headline Industry Data
Port of Kaohsiung tonnage throughput in 2015 forecast to increase by 1.2% to 124.45mn tonnes, after estimated growth of 6.9% in 2014. Over the medium term to 2019, we project an annual average increase of 1.9%.
Kaohsiung's container throughput forecast to grow 3.8% to 10.995mn twenty-foot equivalent units (TEUs) in 2015, down from 6.6% growth in 2014. Over the medium term, we project an annual average 3.9% increase.
The port of Keelung will see modest growth of tonnage in 2015, up 2.1% to 73.72mn tonnes, after growth of 4.1% in 2014. Container traffic will grow 2.6% to 1.729mn TEUs, down from growth of 4.5% in 2014.
Total trade is forecast to expand by 4.6% in real terms in 2015, down from an estimated 5,.6% in 2014.
Key Industry Trends
Yang Ming Announces Piraeus Plans: Yang Ming Lines of Taiwan said in May that it had agreed to use China's Cosco Pacific-operated Piraeus Container Terminal (PCT) as a hub for feeder services to the Mediterranean and the Black Sea. Arkas Hellas, which represents the Taiwanese company, said a Yang Ming ship with 14,000 TEUs capacity had arrived at PCT and would be the first of 15 cargo ships to use the route. According to the President of Arkas Hellas, Aurette Arkas, there will be four departures and arrivals per week to the most important ports of the Far East and two arrivals and departures to the biggest north European ports. At the end of May, smaller Yang Ming ships would also start using Thessaloniki port to serve the transport needs of northern Greece as well as of the Balkan region.
Evergreen Marine Launches China-Indonesia Service: Evergreen Marine said it would work with China's COSCO Group and China Shipping Container Lines Co (CSCLC) to launch a weekly China-Indonesia service, with four 2,000-2,700 TEUs vessels on a rotation taking in Quingdao, Shanghai, Xiamen, Shekou (all in China), Pasir Gudang (Malaysia), Singapore, and Surabaya (Indonesia). Each round trip will take 28 days. After the ASEAN-China Free Trade Area was established in 2010, bilateral trade between China and members of the Association of Southeast Asian Nations (ASEAN) has grown rapidly and the shipper said it has kept a close eye on the rising trading activity among these trading partners. Two-way trade between China and ASEAN members rose 8.3% year-on-year to USD480bn in 2014, Evergreen Marine said, citing statistics compiled by China's General Administration of Customs.
... And Increases its Southeast Asia Focus: Evergreen also said it would be boosting its Southeast Asia services to capture rising regional demand for maritime freight. In March it assigned three 1,600 TEUs ships to a new 21-day round trip service taking in Kaohsiung (Taiwan), Hong Kong and Shekou (China) Port Kelang and Penang (Malaysia), Singapore, and Tanjung Pelepas (Malaysia) before returning to Kaohsiung. Evergreen Marine said the new services are aimed at increasing cargo deliveries for its customers using ports such as Shekou, Singapore and Tanjung Pelepas, which serve as part of the shipper's already broad international network, either operated on its own or through joint services with its partners. The new route is expected to take advantage of booming trade activity in the region as well as in the global market, Evergreen Marine said.
Risks To Outlook
In our view, the main downside risk to Taiwan's economy continues to be the extent of the slowdown in China. Unlike regional peer South Korea, which has a larger and more diversified global footprint, Taiwan's economy is highly dependent on China. We expect China's economic growth to slow to 6.7% this year: should the slowdown be sharper, our Taiwan shipping forecasts will need to be revised down.
There is a more general downside risk linked to politics. The ruling Kuomintang (KMT) party suffered a landslide defeat in local elections in November 2014, increasing the likelihood that the opposition Democratic Progressive Party will win the 2016 general elections. This may trigger a period of instability this year with divisions within the KMT making themselves felt. It also signals a possible pause in the KMT policy of strengthening links with the mainland.