BMI's Executive Summary

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A China Airlines (CAL) passenger plane suffered a serious accident on August 20 on the Japanese island of Okinawa. The Boeing 737-800 caught fire and burst into flames on the southern runway of Naha airport; all 165 passengers and crew were able to escape to safety sliding down the emergency chutes. Analysts said that despite significant improvements the latest accident could undermine consumer confidence in CAL and affect its recovery, at a time of increasing competitive challenges. CAL said in late August that it had swung to a net loss in H107 on higher oil prices, though stronger travel demand boosted its second-quarter operating profit. Its net loss in the January-June 2007 period was TWD868.3mn (US$26.3mn), reversing a net profit of TWD128.1mn in the first half of 2006. Revenue in the period rose 5.1% to TWD59.56bn from TWD56.65bn. In this report, BMI concludes that the island's airfreight carried is likely to grow by a modest annual average of 3.9% in 2007-2011.

There are a number of reasons for this. There are growing signs that traffic is diverting to the mainland, with Shanghai emerging as an important Asian hub and taking business away from Taipei. While electronic components and equipment made in the mainland were previously exported by air via Hong Kong and Macau to Taipei, now they are increasingly being shipped out directly via Shanghai. Taiwan's carriers are adapting to the new reality. EVA Airways, the number two airline on the island, has formed a cargo joint venture with Shanghai Airlines, in which it holds a 25% minority stake. CAL has an interest in another Shanghai-based freight company, Yangtze River Express Airlines.

The rush of business into the mainland also affects some other freight transport modes. In shipping, the mainland boom is a factor holding back our traffic carried forecast to 4.4% per annum over the next five years. However, we feel a number of Taiwan-based shipping lines are somewhat ahead of the game, having established themselves as global players. Road freight traffic within the island will evolve moderately, with average growth of 2.7%. In this area Taiwan resembles a developed economy where traffic growth tends to trail, rather than lead, GDP expansion. We are also predicting modest rail cargo growth at around 2.1% per annum.

BMI gives Taiwan a composite score of 40.0 (out of a potential maximum of 70) in its freight transport business environment 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.

Despite the competitive challenge from the mainland, we are still reasonably optimistic about the future for Taiwan's overall freight transport industry. The total value of transport and communications GDP will rise to US$37bn in nominal terms by 2011, representing 7.1% of Taiwan's GDP.

Contents

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Chapter 1 - Executive Summary

Chapter 2 - SWOT Analysis

Taiwan Shipping SWOT

Taiwan Economic SWOT

Chapter 3 - Business Environment Overview

Table: Asia Pacific Freight Business Environment Ranking

Business Environment Rankings

Economics – Long-Term Risk

Politics – Long-Term Risk

Freight Transport Growth

Transport Infrastructure Growth

Regulatory Environment

Competitive Environment

Transport Intensity Index

Political Risk Summary

Economic Risk Summary

Business Environment Risk Summary

Legal Code/Corruption

Red Tape

Labour Force

Chapter 4 - Industry Trends And Developments

Rail

Air

Sea

Chapter 5 - Industry Forecast Scenario

Macroeconomic Outlook

Table: Population And Output

Chapter 6 - Country Snapshot: Taiwan Demographic Data

Section 1: Population

Table: Demographic Indicators (2005)

Table: Employment Indicators

Table: Consumption And Stratification

Table: Wages Per Annum, Manufacturing

Chapter 7 - Transport Outlook

Table: Freight Carried (domestic and international):

Table: Freight Transport & Communications Sector Data and Forecasts

Chapter 8 - Trade Environment

Table: Value Of Imports By Category (US$mn)

Table: Value Of Exports By Category (US$mn)

Foreign Trade Regime

Overview

Trade Agreements

Tariffs/Non-tariff Barriers

Chapter 9 - Market Overview

Multimodal

Infrastructure

Road

Competitive Landscape: Road

Rail

Competitive Landscape: Rail

Air

Competitive Landscape: Aviation

Company Profiles

Water

Competitive Landscape: Maritime

Company Profiles

Chapter 10 - Appendix: Regional Demographic Data

Table: Manufacturing Wages (ave per annum), US$

Table: Population

Table: Household Spending Per Capita, US$

Table: Private Consumption Per Capita, US$ PPP

Table: Market Size, GDP, US$bn

Competitive Landscape for Asia Freight Transport Reports: Sample of Companies Ranked

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Analysis of latest projects across the freight transport sector – road, rail, air, sea, logistics – including market overview which provides an outline of the key elements driving development. SWOT analysis of the state’s business environment, transport sector, politics and economics, which carefully evaluates the short- and medium-term issues facing the industry.

Network of Asian Freight Transport Sources

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BMI's Asian Freight Transport Reports are based on an extensive network of multilateral organisations, government departments, freight transport industry associations, chambers of commerce and company reports. Information sources include: