Taiwan Today

Just as rust can destroy a ship, over­ regulation, declining efficiency, and shortsighted self-interest are starting to eat away at Kaohsiung Harbor’s reputation and attractiveness to shipping firms. Hong Kong and Singapore have already built much better reputations for efficiency and cost-effectiveness, and now other ports from South Korea and Mainland China to Southeast Asia are vy­ing to cut further into Kaohsiung’s status as the world’s third-largest container port.

Although international business­ people acknowledge that Taiwan has solid advantages, including a central geographical location, high-quality human re­sources, and expandable port facilities, these advantages are proving insufficient to keep Kaohsiung competitive as a ship­ping center. Bureaucratic reform is consid­ered by many industry executives to be the top priority. “Restrictions set by the government are a main source of the port’s in­efficiency and can be considered the first barrier to the APROC plan.” says Monday Lu (盧順鴻), regional manager of Ameri­can President Lines (APL). His criticism stems in part from the complex adminis­trative control over the facility: Kaohsiung Harbor is owned by the provincial govern­ment, supervised by both the provincial and central governments, regulated by the Taiwan Provincial Assembly, and oper­ated by the Kaohsiung Harbor Bureau. The multiplicity of agencies has fostered exten­sive regulation.

S. S. Lin (林省三), chairman of Ev­ergreen Marine Corp., points out a typical problem. “Even though we have rented our own private pier, we are still subject to regulatory interference with our opera­tions,” he says. “The Kaohsiung Harbor Bureau is the operating agency and the ad­ministrative office at the same time. This is not to say that they have done something wrong, but the business acumen of the public sector is rarely as good as that of the private sector.”

Monday Lu agrees with the view that more privatization would be a shot in the arm for the harbor’s competitiveness. “If the administrative interference, or con­trols, were removed,” he says, “the Kaohsiung port, fueled by the private sec­tor, could grow without spending a penny. But there is resistance to greater involve­ment from the private sector because the harbor bureau has to provide a steady, de­pendable cash flow for the provincial government. Since the bureau is a player as well as the referee, the only thing you can negotiate is the rent on the contract.” Like many shipping executives, Lu would like to see the regulatory and operational functions of the harbor separated into two agencies. “The harbor bureau should either act as port management or function as an investor to develop the port to meet future demands,” he says.

Frustration with the present state of affairs is echoed by Frank Lu (盧峯海), president of Yangming Marine Transport Corp. “Everything is regulated according to the fiscal demands of the harbor bu­reau’s superiors [in the provincial govern­ment],” he says. “As a result, rental policies lack the flexibility of a free economy and fail to reflect the demands of free market.” To solve the problem, he suggests establishing an administrative body to process input from central, provincial, and local governments in order to shorten decision time and allow greater flexibility. “Furthermore,” Lu adds, “an agency should be formed to operate the port with a more businesslike and entrepre­neurial spirit.” Lu is quick to point out that he does not necessarily advocate the pri­vatization of the port, but he stresses that whatever agency takes charge of opera­tions must be able to make the port func­tion as a competitive enterprise. “As an incentive, the operating agency could receive earnings in the form of rent or commissions based on each shipper’s rev­enues,” he says.

The Ministry of Transportation and Communications (MOTC), recognizing that Kaohsiung Harbor needs rejuvenation, recently formed an interim committee­ composed of two subcommittees—to ad­minister the facility. One subcommittee is in charge of overseeing construction of better transportation links between Kaohsiung city and the port; the other will function as a transitional body tasked with guiding the facility toward private operation.

“This committee should solve the con­flicts between different levels of govern­ment,” says Ken Soerensen, managing director of Maersk Taiwan, Ltd. “I see that as the first step to getting rid of the bureauc­racy, although there is a great distance in terms of mindsets between those who make policy and those who implement it. MOTC officials are very commercially minded, but the guy on the dock still holds the old ‘good­-enough-for-government-work’ attitude. Taiwan is changing, yet not all the people are changing with Taiwan.”

Shippers are also asking for more ef­ficient customs procedures and less paper­ work than is presently the case from the ROC’s Sea Cargo Clearance Automatic System. Other requests include allowing those who have leased private piers to con­solidate cargoes in rented container terminals, expanding customs operations to 24-hour service, and expediting the up­grading of port facilities.

Labor is proving to be one of the ma­jor sticking points in upgrading harbor op­erations. At present, according to APL’s Monday Lu, shipping companies have to send a request to the harbor bureau when they need labor. The bureau then contacts the Stevedores Union to supply the re­quired personnel. “The association has become a monopolistic organization with members coming from the same families generation after generation. Why? Be­cause they enjoy many benefits and privi­leges,” says Monday Lu. “Shippers have no rights in selecting and appointing work­ers, not to mention firing unqualified ones. You have to take what they give you.”

Frank Lu of Yangming suggests that the problem could be solved by transforming the Stevedores Union into an industrial association and by establishing a more rea­sonable wage scale, recruiting new and qualified members, and dismissing aged and unqualified workers. The matter re­mains a hot potato, however, because no consensus has been reached on who should shoulder the responsibility for making such changes. The situation is further com­plicated by the vested interests of the harbor workers themselves. The MOTC has indicated that it is presently consulting experts in order to find a solution that is fair and acceptable to all parties.

In addition to the so-called software issues raised by many shippers, timely development of existing port facilities is also of great concern. “Nothing can be built by plans alone, and I haven’t yet seen much activity on devel­oping land-side facilities,” says Maersk’s Soerensen. “You can’t attract foreign com­panies to set up operations centers where the services and infrastructure are inadequate. Upgrading services and facilities is necessary for realization of the shipping center plan as well as improving the image of Kaohsiung Harbor as a re-export center. But all this faces serious time constraints. If we don’t act fast in Taiwan, we are go­ing to lose out to Hong Kong, Yantian, Xikou, and Shanghai.”

According to Monday Lu, improving the port’s services and facilities is not a new idea. “We have been talking about value­-added operations for two or three years now,” he says. “We have long recognized that such capabilities as processing, consoli­dating, distributing, and warehousing will definitely increase Kaohsiung’s attractive­ness.” But Yangming’s Frank Lu says that augmenting existing facilities is not enough. “It is necessary to develop a stronger coastal transportation network between Kaohsiung and other important ports such as Taichung and Keelung in order to decrease costs and increase efficiency,” he says.

Oliver Yu (游芳來), navigation and aviation director of the MOTC, indicates that the government is presently developing a plan aimed at integrating Taiwan’s three main ports in part by assigning them com­plementary functions. Under the provisions of the plan, Kaohsiung will serve primarily as an international transship­ment center, Taichung port will target re­gional cargo processing and re-export, and Keelung port will be an import-export center for high-value merchandise.

A key element of the APROC ship­ping center plan is the Kaohsiung Offshore Trans­shipment Center. Transship­ment already constitutes an essential as­pect of Kaohsiung Harbor’s operations. In 1994, the port handled a total container volume of 4.9 million TEUs (twenty-foot equivalent units) of which just over 2 mil­lion TEUs, or 41 percent, were for transship­ment. The plan is projected to increase the competitiveness of Kaohsiung as a transshipment port for cargo from and destined to Mainland China, and thus to attract such transshipment business away from Hong Kong, the main transshipment port for cargo traffic between Taiwan and the mainland.

Cargo processed by the Kaohsiung port’s offshore transshipment facility will be considered “offshore” because it will not pass through ROC customs, nor will it enter Taiwan proper. Instead, the cargo will be combined with other shipments destined for third countries.

Fu Don-cheng (傅棟成), formerly the executive secretary of the Council for Eco­nomic Planning and Development ad hoc committee responsible for brainstorming regional operations center ideas and now the Mainland Affairs Council’s director of economic affairs, explains that because the time is not yet ripe for direct shipping links, at first only foreign and FOC (flag of con­venience) ships will be allowed to partici­pate in the offshore transshipment center. Regulations governing the transshipment of mainland goods also stipulate that ships using the Kaohsiung offshore transship­ment center will only be allowed to oper­ate between Taiwan and mainland ports. But Monday Lu argues that the success of the transshipment center will depend on greater route flexibility. “Although having great potential, the impact of the transship­ment facility will remain insignificant until our vessels can pick up cargoes from the Philippines, Hong Kong, and other areas in addition to mainland ports and combine those cargoes in Kaohsiung for transship­ment,” he says. “The route restrictions cur­rently being proposed will be neither cost­ nor time-efficient.”

Cross-straits transshipment is further complicated by the lack of deep-water ports along China’s southern coast to accommodate larger, more cost-effective cargo vessels. Shanghai is working to con­vert its harbor from a present high tide depth of 10 meters to a deep-water port (14 meters or more in depth) by the year 2007. Yantian is the only deep-water port presently in existence on the mainland side of the cross-straits route, but it lacks adequate ground transportation links.

Many shippers believe that restric­tions on navigation to and from Mainland China is an important reason why, as a port, Kaohsiung has fallen behind Hong Kong and Singapore. The offshore trans­shipment center is intended to address this problem. S. S. Lin of Evergreen is optimistic about the center’s competitive poten­tial. “Hong Kong harbor is already too crowded and too costly,” he says. “If they [mainland companies] use Kaohsiung as a transshipment center, they can save 20 to 40 percent in shipping costs.” This point is echoed by Yangming Marine’s Frank Lu. “The Kaohsiung center will provide a cost­-effective option for shipping agencies and help form a new direction in the flow of goods around the region,” he says.

Locally-based shippers expect the mainland to establish regulations on the transshipment initiative by the end of this year and to implement them after the ROC s first direct presidential election in March 1996. However, it is difficult to know exactly what provisions those regu­lations will include. As a result, many ship­pers have adopted a wait-and-see attitude. “We get very little insight from the vague statements of mainland harbor officials,” says Monday Lu. Nonetheless, many ROC shippers remain optimistic. “Mainland China does not oppose the offshore ship­ping center plan because it is a step toward direct transport links,” says Frank Lu. “But they need time to reach an internal consensus on how to deal with it.”

In the absence of facts about the main­land regulations, rumors abound. “We have heard disturbing stories that say only ROC and PRC ships will be allowed to operate on the transshipment route via Kaohsiung,” says Maersk’s Soerensen. “We would un­derstand that for an intra-coastal direct-trade route such conditions would be internation­ally acceptable. But as far as transshipping is concerned, it would constitute protection­ism. That would hardly be accepted interna­tionally.” APL’s Monday Lu questions whether the mainland would adopt such pro­tectionist policies. “It is a matter of interna­tional practice to use offshore shipping centers as a way to sidestep national bounda­ries that can sometimes obstruct the sea transportation industry,” he says.

In general, both local and foreign ship­pers share a positive view of the plan’s po­tential. For instance, Frank Lu even holds a fraternal view toward potential mainland partners. “We are all Chinese, we speak the same language, share similar thoughts, and our resources are complementary,” he says. “Mainland China has a surplus of cost-effective labor, land and natural re­sources, as well as a huge consumer market. Meanwhile, Taiwan offers more highly developed technologies, manage­ment and marketing skills, and a higher degree of internationalization. I think of Mainland China as the dragon and Taiwan as the pearl,” he continues, in reference to a common motif in Chinese art that depicts a dragon in pursuit of a fiery pearl through the heavens. “The APROC plan can make the pearl brighter and help energize the main­land dragon by improving the living stand­ards there through economic development.”

Along with everything else, accord­ing to Frank Lu, the cross-straits trans­portation issue has important symbolic meaning. Successful implementation of the plan would demonstrate that both sides are capable of building and main­taining a peaceful and mutually prosper­ous relationship. “Then,” he says, “we will be able to secure not only the con­fidence of ROC investors but also that of foreign investors as well.”