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Battle of the Cross-strait Ports

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In the space of a decade, Ningbo has taken Kaohsiung's place in the world's top ten container ports. How might Kaohsiung use the opening of direct transport links with China to regain its former glory?

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Battle of the Cross-strait Ports

By Elaine Huang, Shu-ren Koo
From CommonWealth Magazine (vol. 413 )

A decade ago, Kaohsiung was the world's third largest container port, and Ningbo was an obscure fishing harbor along the coast of China.

Ten years later, the playing field has changed. Much of Taiwan's manufacturing sector has moved offshore, and with the steady decline in container volume, the Port of Kaohsiung this year fell from the ranks of the world's 10 biggest container ports for the first time. Container shipping demand from Taiwanese manufacturers in the Jiangsu-Zhejiang region has meant more ships calling at Ningbo, propelling it into the ranks of the world's 10 largest container ports. With both ports handling around 10 million TEUs (20-foot equivalent units) a year, Kaohsiung and Ningbo are now locked in fierce competition.

The Port of Kaohsiung's number-one competitor is definitely China's Port of Ningbo, Kaohsiung Harbor Bureau director-general Shieh Ming-hui acknowledges.

With the much-heralded opening of direct transportation links with China, the Port of Kaohsiung is seeking to restore its former status as a major international player by reinventing itself as an added-value logistics hub. Ningbo has meanwhile devoted itself to establishing external contacts, aiming to follow in the footsteps of Shanghai and Shenzhen in becoming another magnet for global cargo.

The changes in the two ports' global rankings are actually a reflection in miniature of the commercial rivalry between China and Taiwan.

For more than a century, Kaohsiung Harbor has served as Taiwan's biggest portal for incoming and outgoing commerce, the front lines in Taiwan's global trade contacts. Taiwan's first telegraph line was constructed here during the Qing dynasty. During the 50 years of Japanese colonial rule, 10,000 tons of cane sugar moved through Kaohsiung Harbor each day – the island's original "Taiwan Number One" export achievement.

But over the past 10 years, the Port of Kaohsiung's ranking has declined sharply as China's rising coastal ports have taken advantage of the relocation of Taiwan manufacturers and China's role as factory to the world. Where there is cargo, there will be container traffic. With cargo shipping directly from China, the Port of Kaohsiung's fortunes have declined, as fewer and fewer ships are calling.

Sliding from Third to Eleventh

As 2008 drew to a close and just as global recession loomed, the Port of Ningbo narrowly edged out former world number three Port of Kaohsiung for tenth place in the global container port rankings (Ningbo had been eleventh in the January through November period). 

Once a minor fishing port, Ningbo has in the past seven years benefited from ample demand from the Jiangsu-Zhejiang region to become China's fastest growing seaport, with the annual volume of containers handled having grown nearly seven-fold during that period. Ningbo expects to handle 11 million TEUs this year, surpassing Kaohsiung.

On December 15, 2008, the Evergreen Marine vessel M.V. Uni-Adroit set sail from the Port of Kaohsiung to Tianjin – the first direct voyage from Kaohsiung to China in more than half a century. As the Uni-Adroit sounded her horns upon departure, it seemed the old harbor had a new lease on life. Henceforth, passengers and goods may travel directly between Kaohsiung and China's 63 river and sea ports. Evergreen Marine chairman Arnold Wang privately estimates container traffic at the Port of Kaohsiung will grow by at least 10 percent as a result of direct links with China.

"We hope to create a new spring for the Port of Kaohsiung," says Wang Wu-hsiung, the 70 year-old chairman of Kaochun Stevedoring Co., Ltd. who grew up in the surrounding neighborhood and recalls seeing container ships anchored offshore for three weeks waiting their turn to enter the busy harbor in its glory days.

Exploding the Rankings Myth

But the opening of direct links nets Kaohsiung merely around 10 percent growth in container traffic, compared with ports all over China posting double-digit growth. Just how does that add up to a renaissance for Kaohsiung?

"This rankings myth must be dispensed with for Kaohsiung to have a renaissance," Wagon Shipping Corp. chairman Hung Ching-tan offers, as a reminder to those thinking the harbor can capitalize on the direct links opportunity. "Your average harbor region in China is by itself half the size of Taiwan. Kaohsiung can't compete in terms of scale," Hung says.

Kaohsiung is situated halfway along the Northeast Asia-Southeast Asia corridor and is an ideal transshipment point for East Asian cargo destined for North America and Europe. Kaohsiung had grown accustomed to its transshipment and import/export container volume to maintain its global ranking in that respect, but "hanging on to sixth" became "hanging on to eighth" which led to falling out of the top ten altogether.

In terms of sheer volume, Kaohsiung just can't compete with Chinese ports. Ningbo has overtaken Kaohsiung with minimal effort thanks to the substantial amount of manufacturing clusters in the Jiangsu-Zhejiang region, which all move their goods out through Ningbo – from the shoes and finished garments of Yiwu and Wenzhou to the textiles of Shaoxing. The annual production value of Zhejiang Province's manufacturing sector alone is NT$5 trillion.

Ironically, it has been Taiwanese companies that have assisted Ningbo in its takedown of Kaohsiung. Formosa Plastics Corp. built its largest overseas production facility three years ago in Ningbo's Economic and Technological Development Zone, and will now be shipping raw materials directly from Mailiao Harbor in Taiwan to Ningbo. Another 30 associate companies have also set up in Ningbo to support the facility.

In contrast, Kaohsiung's rearguard has grown increasingly thin after years of overseas flight by Taiwan's manufacturing sector. The annual combined production value of all of Taiwan's industrial parks, export processing zones, and science/technology parks is now just around NT$7 trillion.

The realities of cross-strait trade leave Kaohsiung powerless to compete in scale and volume. In the wake of the opening of direct links with China, the battle for resurgence that Kaohsiung must launch is not a "battle of scale" but a "battle of value."

Evergreen Group first vice president Lin Sun-san notes that with the reduction in operating costs and transit times, as well as the deteriorating operating environment in China, Taiwanese businesses will opt to bring goods into Kaohsiung for processing, later shipping the finished goods with a "Made in Taiwan" label, thus increasing the value.

New Paradigm – Comprehensive Added-Value Services

As fortune would have it, it may be Taiwanese companies that now assist in Kaohsiung's resurgence.

Not long ago, Foxconn chairman Terry Kuo, mulling the possibility of centralizing shipments from some of his Southeast Asian plants through Kaohsiung, paid a discreet visit to the Port of Kaohsiung, even meeting with Minister of Transportation and Communications Mao Chih-kuo. Foxconn even set up an ad hoc work group to scout out land and appraise locations from the Port of Kaohsiung to the Taichung Free Trade Zone in hopes of constructing a large-scale distribution center at one of the port areas, in the future taking and shipping orders from Taiwan.

Taiwanese companies are using the Port of Kaohsiung as a means of raising the value of their goods. Judging from the perspective of user demand, the Port of Kaohsiung clearly needs to depart from its business model of transshipment – bringing cargo in and out, loading and unloading – and find a new paradigm.

Keen Perception Industries, Inc., a maker of all-terrain vehicles, just moved into the Lingang Industrial Zone in December. About 80 percent of Keen's parts are manufactured and undergo assembly in China before being shipped to the free trade zone within the Port of Kaohsiung for final assembly, including the engine starter, a core component. The final product can then be shipped as "Made in Taiwan," thus increasing its value by 5 to 15 percent.

"The free trade zones and export processing zones around ports are critical to adding value to goods," says Keen Perception president Michael Wu.

"Transshipment fees can only land you a profit of 20 or 30 bucks U.S., but bringing goods into a port's free trade zone to add value in-house or to an export processing zone for outside processing can add several thousand dollars to the final value of the goods," says Hung Tung-chen, president of Tonglit Logistics Co., Ltd. based at the Port of Taipei.

The new model for the Port of Kaohsiung is to transform from a purely loading/unloading port to one where a full range of comprehensive value-added logistics services are on offer. A port facility is after all a platform for integration, creating value along the global chain of supply and demand.

This will involve some rivalry as well as cooperation among cross-strait ports and shipping companies. The first step in the new Kaohsiung model is to get a leg up by finding strategic partners.

"[The Port of] Taicang is quite interested in concluding an agreement with the Port of Kaohsiung," says Kaohsiung Harbor Bureau Harbor operations director Cheng Chien-yu. "Shanghai is too crowded, often with major traffic jams. Better to ship from Taicang to Kaohsiung for transshipment," he adds.

He freely shares a short list of Chinese ports with which he's seeking arrangements like joint establishment of new sea routes and setting preferential rates to attract shipping companies.

The second phase is to attract the shipping companies into the port area. For example, the day of the first direct cross-strait voyage, Chinese shipping giant Cosco signed a letter of intent with the Kaohsiung Harbor Bureau to invest in the 6th Container Terminal BOT project organized by the Yang Ming Group and the Port of Kaohsiung.

"If you find some shippers to come and invest, they'll be more inclined to bring their routes through Kaohsiung, and then the goods will come through for transshipment," says Yang Ming chairman Lu Feng-hai.

And while Kaohsiung has accelerated the pace of its pursuit of advancement, its competitors have not slackened their efforts. In its quest to become a world-class shipping hub, Ningbo has been actively seeking to extend its reach overseas.

First, as part of an equity investment, Ningbo has brought in the port operations and logistics expertise of Hutchison Whampoa, which operates facilities in Hong Kong, Dubai, the UK and elsewhere, to boost the efficiency of its port operations. It has also attracted investment in container terminals from international shipping companies such as Orient Overseas Container Line Ltd. and Lloyd Triestino di Navigazione S.P.A. to vie for port calls by primary vessels along international routes. This past summer the Port of Ningbo also made an equity investment in the Port of Zhapu on the north shore of Hangzhou Bay, seeking to bring in the substantial amounts of cargo from the surrounding Hangzhou region for transshipment, further increasing the volume of containers handled at Ningbo.

Challenge No. 1: Insufficient Breathing Room

The biggest challenge in creating a new model to make the Port of Kaohsiung more competitive is the severe limitation of surrounding land.

"One of the main reasons the Port of Kaohsiung can't grow is that usage is near the saturation point but there is no land to expand," says Liu Wen-bin of Ho Tai Industries Logistics Unit. In September, Ho Tai leased a space of around 89,000 square feet in the Port of Kaohsiung's free trade zone for use as a distribution center for the Japanese Daikin air conditioners it distributes. If they wanted to rent an additional warehouse, however, there would be no room.

Separated from the harbor by just a wall, the Chienchen Export Processing Zone is Taiwan's oldest such zone and has achieved an occupancy of 80 to 90 percent. If the new Port of Kaohsiung model is to float, sufficient land will be needed to build a logistical base.

After six years in Kaohsiung, Harbor Bureau director-general Shieh Ming-hui has heard more than his share of complaints from shipping companies about the lack of surrounding land for expansion. He is keenly aware of the limitations of Kaohsiung Harbor and knows if they are not resolved Kaohsiung has little chance for a renaissance. With annual operating revenue of NT$9 billion, the harbor bureau has set aside for 2009 a budget in excess of NT$8 billion for construction aimed at seizing that opportunity.

Challenge 2: Streamline Administration and Regulation

The Port of Kaohsiung is also preparing to embark on a "port-city collaboration" in partnership with the Kaohsiung City Government, integrating the 170-hectare free trade zone as specified in the city government's "Southern Star" project, thus helping to alleviate some of the concerns regarding a lack of land resources. There is even talk of constructing a highway linking the port area to the outside, thus bypassing city traffic.

Another challenge to the new Kaohsiung model, however, is precisely the result of free trade zones, export processing zones and the like falling under the regulatory auspices of different government entities. The arbitrariness of regulation must be streamlined.

"Not resolving this will affect the willingness of businesses to come," says Keen Perception's Wu, while remaining hopeful that this will not prove a stumbling block that dooms the new Kaohsiung model to the fate of the unrealized "Asia-Pacific Regional Operations Center" scheme of years past.

There is excitement in the aftermath of the opening of direct links, but things remain strangely quiet as the sun sets over the Port of Kaohsiung.

Perhaps the ebb and flow of the previous 10 years allows the residents of the old port to await the actual results of the political fanfare with a cool detachment. Facing such headlong competition, the Port of Kaohsiung must be a little more practical to propel the dream of a revival in Taiwan's manufacturing sector. And it must quickly form a consensus and then act on it.

Translated from the Chinese by Brian Kennedy


Chinese Version: 競爭最前線 高雄港PK寧波港

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