US embassy cable - 04TAIPEI3406

C O N F I D E N T I A L SECTION 01 OF 03 TAIPEI 003406 
 
SIPDIS 
 
DEPT FOR EAP/TC 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: DECL: 10/27/2014 
TAGS: EWWT, ECON, ETRD, PREL, CH, TW 
SUBJECT: CROSS-STRAIT SHIPPING - INEXPENSIVE, NOT 
INSIGNIFICANT 
 
 
Classified By: AIT Economic Section Chief Daniel K. Moore, Reason 1.4 ( 
B/D) 
 
Summary 
------- 
 
1.  (U) Businesses on both sides of the Taiwan Strait look 
forward to the possibility of direct marine cargo links 
between the Mainland and Taiwan.  However, they have also 
been very resourceful at taking advantage of small openings 
and the flexibility of Taiwan, PRC and other authorities to 
ship goods inexpensively through different routes across the 
Strait.  As a result, the additional expense imposed by the 
lack of direct links on sea freight is very small.  As one 
observer put it, Taiwan and the PRC already have virtual 
direct shipping links; they,re only indirect on paper. 
Establishing direct shipping links will have a positive 
impact on Taiwan,s economy.  Initially the impact will be 
small, but the importance of direct shipping will grow in the 
long run.  Taiwan,s experience with various methods of 
indirect shipping provides a good base for making progress on 
direct marine links and improved cross-Strait relations. 
(End Summary) 
 
Gradual Liberalization Stills Falls Short 
----------------------------------------- 
 
2.  (U) The restrictions on cross-Strait shipping are neither 
absolute nor static.  Over the past 10 years, several 
openings have been made to ease cross-Strait transportation 
while maintaining the basic prohibition against direct 
shipping.  Two significant openings stand out: in 1995 Taiwan 
approved cross-Strait offshore transshipment through 
Kaohsiung Harbor, which was further expanded in 2004 to 
Keelung and Taichung Harbors.  The second big opening 
occurred in 2000 when the mini-links from Kinmen and Matsu, 
controlled by Taiwan, to the Mainland ports of Xiamen and 
Fuzhou were opened.  These and other gradual changes have 
substantially liberalized cross-Strait transportation and 
paved the way for direct shipping links.  However, the 
current situation still imposes some small costs and 
inconveniences. 
 
Various Routes Across the Strait 
-------------------------------- 
 
3.  (C) Several options currently exist for moving goods by 
sea across the Taiwan Strait.  All are subject to 
restrictions, but shipping companies and their customers have 
found means to minimize the cost imposed by these 
restrictions.  According to industry experts, it is difficult 
to gauge and compare the volume of cargo shipped through the 
various routes because they are measured by different 
organizations using different standards )- if measured at 
all.  These methods can be grouped into three main categories. 
 
--International Shipping Link - Any ship can travel between 
the PRC and Taiwan with an intermediate stop in a third 
location.  This method of shipping makes up the bulk of 
cross-Strait shipping and virtually all Taiwan-PRC trade that 
is shipped by sea.  Dai Heui-huang, professor at National 
Kaohsiung Marine University, told AIT that the volume of 
cargo that is shipped across the Strait is very difficult to 
estimate.  However, he indicated that at least 1 million TEU 
of cargo is shipped this way.  The most common stopping 
points are Hong Kong and Ishigaki Island, Japan.  Ships are 
required to show documentation from the stopover port upon 
arrival.  Some contacts report that many ships, possibly 
most, do not physically stop in a third port, but instead 
obtain their paperwork through other channels.  For example, 
Japanese customs officials will reportedly meet ships at sea 
without requiring the vessel to actually dock at a Japanese 
port.  One contact indicated that the necessary Hong Kong 
documentation could be obtained for as little as USD 200 
without a physical stop in the port. 
 
--Offshore Transshipment Link ) Ships flying flags other 
than ROC or the PRC, including ships owned by Taiwan and PRC 
shipping firms, travel directly to and from PRC ports on 
routes that include a third destination.  However, they 
cannot ship cargo directly.  No PRC-origin cargo can clear 
customs in Taiwan and no Taiwan-origin cargo can clear 
customs in the PRC, unless the ship has passed through 
another port in between.  For example, a ship in Taiwan could 
take on cargo bound for the U.S., travel to the PRC, take on 
more cargo, and then return to the U.S.  This route cannot be 
used for cross-Strait trade, so the main beneficiaries in 
Taiwan are shipping companies.  Keelung and Taichung were 
only approved as offshore transshipment centers this year. 
In 2003, a total of 630,336 twenty-foot equivalent units (TEU 
) a unit of cargo volume equal to one twenty-foot container) 
was loaded or unloaded at Kaohsiung Harbor.  However, 
Professor Dai estimates that 70 to 80 percent of the total 
volume is comprised of empty containers enroute to the PRC to 
be filled with exports. 
 
--Mini Three Links ) Taiwan and Mainland Chinese vessels 
flying ROC and PRC flags are able to travel directly between 
Taiwan-controlled Kinmen and Matsu and the Mainland ports of 
Xiamen and Fuzhou.  They carry both passengers and cargo. 
However, cargo is limited to goods produced locally or for 
local consumption on the small Taiwan-controlled islands just 
off the Mainland coast.  As a result, mini-three-links cargo 
makes up only a tiny fraction of goods shipped across the 
Strait. 
 
Cheap for Now 
------------- 
 
4.  (U) Despite regulations and the complications of 
cross-Strait shipping, industry experts estimate that current 
costs are not substantially higher than direct shipping costs 
would be; delays are generally short as well.  For example, 
Bob Hsu, Secretary General of the National Association of 
Chinese Ship Owners (NACS), estimates that the fare for 
shipping one TEU from Kaohsiung to Tienjin via Japan,s 
Ishigaki Island is approximately USD 480.  Direct sea cargo 
links would reduce the price only to USD 475.  The Japan stop 
(or sail-by) only adds about one day to the total shipping 
time.  Hsu estimates that there would be no cost savings 
whatsoever on the shorter Kaohsiung-Shanghai route.  A stop 
in Hong Kong en route to Guangzhou only adds about two 
dollars to the cost of shipping each TEU and increases 
shipping time by less than one day.  Greater savings would be 
found on Kaohsiung-Fuzhou and Kaohsiung-Xiamen routes where 
direct shipping would cut costs by approximately 7 percent. 
The time saved on these routes would be more substantial, 
cutting a three to four day trip down to one day. 
 
Impact of Direct Shipping ) Stronger in the Long Run 
--------------------------------------------- ------- 
 
5.  (C) Direct marine cargo links would leave their strongest 
impact on the shipping industry itself.  However, much of the 
impact would come from increased access to the Chinese market 
for Taiwan shipping firms rather than the reduced costs. 
NACS Secretary General Hsu tells AIT/T that Taiwan shipping 
firms expect that negotiations on direct shipping links would 
also result in an agreement that would permit greater access 
to the Mainland market, particularly the authority to set up 
branch offices in China.  Currently, the PRC will only 
approve representative offices, which are permitted to engage 
in promotional activities.  Branch offices would also be 
allowed to engage in sales and issuance of bills of lading. 
Taiwan,s major shipping companies generate about 50 to 60 
percent of their revenue from the greater China market. 
Evergreen and Yangming shipping companies report that 1.5 
percent of their revenue from business in the China market 
goes to commissions paid to Mainland brokers.  Branch offices 
in China would cut their expenses significantly and help them 
increase opportunities in China. 
 
7.  (C) In the short term, the real economic impact of direct 
cross-Strait shipping on Taiwan,s overall economy would be 
much smaller.  The cost savings from direct shipping would be 
an almost negligible fraction of an already inexpensive 
transportation option.  Saved shipping time would also be 
small for most routes.  Chinese National Federation of 
Industries Deputy Secretary-General Tsai Horng-ming told us 
that in shipping Taiwan and the PRC already have virtual 
direct links; they,re only indirect on paper.  (In contrast, 
the savings offered by direct air cargo links would be much 
more substantial and immediate.  We will report on the 
potential impact of direct air links via septel.) 
 
8.  (U) However, over time, these small cost and time savings 
will grow in relative importance.  As PRC ports expand and 
improve their services, Taiwan ports will be less competitive 
without direct links.  With the continued expansion of 
cross-Strait trade, the total cost imposed by indirect links 
will grow.  As Mainland industrial technology advances, 
Taiwan,s manufacturing industries will need to work harder 
and further cut costs to maintain competitiveness.  Small 
variations in shipping expenses will grow in significance. 
 
Comment ) An Opening for the Cross-Strait Relationship 
--------------------------------------------- --------- 
 
9.  (U) Although the economic benefits of cross-Strait direct 
shipping are relatively small in the short run, direct 
shipping should still be a priority for the Chen 
administration.  In addition, to growing importance in the 
long run, cross-Strait direct shipping could provide a 
valuable opportunity to improve cross-Strait relations. 
Because of Taiwan,s experience with the mini links and 
offshore transshipment, establishing direct marine cargo 
links may present fewer problems than direct air links. 
Establishing direct shipping links would send a very positive 
message about the state of cross-Strait relations.  The 
implications for future regional stability and further 
normalization of economic relations would increase confidence 
and improve the investment environment in Taiwan. 
PAAL