Taiwan Freight Transport Report Q4 2009

Taiwan's High Speed Rail Corp (HSR) was in July seeking to refinance its existing loans of TWD390bn (US$11.9bn) by the end of 2009, reported Reuters. The deal would replace two loans and a convertible bond. Ju Hsu, HSR's director-general has stated that the company aims to benefit from the current lower interest rates by refinancing, thus achieving huge savings in the interest amount. The company has blamed the high-interest payments for its continuous losses. With interest rates plummeting globally to encourage credit offtake, refinancing of old high-cost loans for present low-cost loans should certainly help the company contain its losses due to interest obligations on debts.

In BMI's latest Taiwan Freight Transport Report, we predict that despite a sharp recession this year, cross-Straits traffic will be an important factor contributing to medium term freight transport traffic growth, which should average 1.1% over the 2009-2013 period. The rush of business towards the mainland affects all freight transport modes. The move is something of a mixed blessing for air freight, as we think Taiwan will, on the whole, lose business to China's emerging airport hubs. We thus forecast Taiwan air freight growth at a low 1.7% over the next five years. In the field of shipping, competitive pressures exist, and while we are predicting that because of the recession sea freight carried will grow by 1.2% per annum over the next five years we are optimistic about the longer term. In our view, Taiwanbased shipping lines are somewhat ahead of the game, having established themselves as global players.

Road freight traffic on the island will achieve average growth of 1.0%. In this area, Taiwan resembles a developed economy where traffic growth tends to trail, rather than lead, GDP expansion. We are also predicting rail cargo growth at around 1.0% per annum.

BMI gives Taiwan a composite score of 50.2 (out of a potential maximum of 100) in its Freight Ratings Index. The country's strengths are quite evenly distributed across long-term economic and political risk, infrastructure growth, and the regulatory environment. Areas for potential improvement include the competitive environment, freight growth, and the transport intensity index - a measure of the current and future dynamism of foreign trade.

In view of the current global downturn and the competitive challenge from the mainland, we project low to moderate growth for Taiwan's freight transport industry. The total value of transport and communications GDP should rise to US$33.8bn in nominal terms by 2013, representing 7.2% of Taiwan's GDP.