Past Issues

Going Straight Ahead

• Byline:DENNIS CHANG
• Publication Date:12/01/2009

A mainland Chinese tour group visits the National Palace Museum in Taipei, one of Taiwan’s most popular tourist attractions, in June this year. (Photo by Central News Agency)

From detoured to direct routes and from chartered to regular flights, the picture of cross-strait air and sea transportation is becoming more complete.

There have been extraordinary changes in transportation across the Taiwan Strait over the past year. December 15, 2008 saw the inauguration of historic direct charter flights and shipping between Taiwan and mainland China. In March this year, the US-based Legend of the Seas, the first cruise ship to sail directly from mainland China, arrived at Keelung Harbor from Shanghai, bringing the largest-ever mainland Chinese tourist group (about 1,600 Amway employees) to Taiwan. In May, the Oceanlala, a Taiwan-based ferry, carried 360 passengers from Taichung in Taiwan to Meizhou in Fujian province on the mainland, making it the first Taiwanese passenger ferry to sail directly from Taiwan proper to mainland China. Then, in September, the Cosco Star from Xiamen in Fujian province took nearly 200 tourists on board at Taichung Harbor, marking the first time a mainland-based passenger ship sailed for home directly from Taiwan proper.

The sky above the Taiwan Strait has been no less busy, especially since August 31 when regular cross-strait flights were officially inaugurated, with frequent flight services between eight destinations in Taiwan and 27 cities in mainland China. In the first three weeks following the launch of regular flights, some 70,000 people took advantage of the new service each week, according to the Civil Aeronautics Administration (CAA), an increase of 52 percent compared with the number of passengers on the previously offered charter flights between the two sides.

The burgeoning transportation links are the result of agreements reached since June 2008 in three rounds of talks between the Taiwan-based Straits Exchange Foundation (SEF) and mainland China’s Association for Relations Across the Taiwan Strait (ARATS), the two intermediary bodies authorized to engage in negotiations on behalf of their respective governments.

The third round of talks in April this year saw considerable progress in the area of civil aviation. The Supplementary Agreement on Air Transport allowed regular flights to open, established two new direct cross-strait air routes, added six new destinations on the mainland, bringing the total to 27, and increased the number of weekly flights from 108 to 270. A survey commissioned by Taiwan’s Mainland Affairs Council following this round of talks showed that more than 70 percent of respondents were satisfied with the agreement.

Fly, Sail Direct

The second round of talks in November 2008 was perhaps even more significant with agreements on direct routes for air and sea travel. The TransAsia Airways flight that departed Taipei Songshan Airport at 8 am and landed in Shanghai at 9:50 am on December 15, 2008, and the container ship owned by Taiwan’s Evergreen Marine Corp. that set sail for Tianjin in mainland China’s Hebei province from Taiwan’s Kaohsiung Harbor at 10 am that same day represented the first direct flight and marine voyage across the Taiwan Strait since 1949, the year when the two sides began to be separately governed. Previous “direct” air routes from Taiwan to mainland Chinese destinations still had to detour through Hong Kong airspace, although those flights were nonstop. Similarly, prior to the December 15, 2008 voyage, ships traveling between Taiwan and mainland China and carrying goods from either place also had to detour via a third territory en route.

The breakthroughs, as Republic of China (ROC) President Ma Ying-jeou said at the ceremony marking the opening of direct cross-strait shipping at Kaohsiung Harbor last December, “not only help reduce transportation costs, but also mark a new climate in cross-strait affairs.” Since Ma took office on May 20, 2008, improving cross-strait relations has been a top priority for his administration, and the growing links are concrete results of its efforts to institutionalize negotiations and normalize transportation between the two sides of the Taiwan Strait.

The first round of talks in Beijing in June 2008 came after a decade-long hiatus and saw the signing of two agreements by the SEF’s Chiang Pin-kung and Chen Yunlin of ARATS on admitting mainland Chinese tourists to Taiwan and launching weekend cross-strait passenger charter flights. Under the agreements, mainland tourists would be allowed to enter and leave Taiwan in groups with a daily ceiling of 3,000 people. The charter flight services, although still having to detour over Hong Kong air space, would be nonstop and could run from Friday to Monday, with each side operating 18 round-trip flights per week between eight airports on Taiwan and five on the mainland.

During that meeting, representatives of the two organizations also raised new issues for future negotiations, such as shorter air and sea routes and daily charter flights across the strait. In November 2008, the second round of Chiang-Chen talks was held in Taipei. Substantial agreements were reached including opening direct air and sea transportation routes; expanding weekend charter flights to daily charter services; tripling the number of round-trip flights per week operated by the two sides from 36 to 108; and increasing the flight points on the mainland from five to 21, with those in Taiwan remaining at eight. All of these arrangements took effect on December 15 of the same year.

For the majority of Taiwanese people, the direct cross-strait flights make contact with those on the Chinese mainland more convenient and faster. “It takes an A340 aircraft about one hour and 22 minutes to fly directly from Taoyuan to Shanghai. That’s roughly 62 minutes and 955 kilometers less than the previous weekend charter flights via Hong Kong,” explains Lee Long-wen, director-general of the CAA under the Ministry of Transportation and Communications (MOTC). “Airlines face difficult operating conditions, so the sharp decrease in flight time and fuel costs can help alleviate the pressure on them. Moreover, through market competition, reduced costs can be reflected in lower ticket prices, thus benefiting consumers and businesses.”

Likewise, there are similar benefits for Taiwan’s shipping industry. According to the Cross-Strait Sea Transport Agreement also reached in the second Chiang-Chen talks, vessels owned by and registered to shipping companies from the two sides are now allowed to operate direct cross-strait sea routes. In addition, the agreement allows Taiwan and the mainland to open 11 and 63 ports, respectively, for direct links.

Although cross-strait shipping had already been partially implemented for transshipments since the launch of the Offshore Shipping Center (OSC) in 1997, many restrictions still existed before the 2008 agreement. Cross-strait imports and exports were still required to be transported via a third territory, for example, while only foreign or flag-of-convenience vessels were able to participate in the OSC arrangement.

Yin Chen-pong, director of the Department of Navigation and Aviation under the MOTC, describes some of the difficulties this caused for Taiwan’s shipping industry, such as some vessels having to detour via Japan’s Ishigaki Island, about 270 kilometers east of Taiwan, while others resorted to foreign registration.

The Xin Yan Tai departs from Tianjin, Hebei province in mainland China on December 15, 2008 bound for Keelung in Taiwan. The trip marked the first direct voyage of a ship from mainland China across the Taiwan Strait in nearly 60 years. (Photo by Central News Agency)

Time and Money

“This waste of time and fuel greatly increased their shipping costs, making some foreign shipping lines unwilling to maintain operations in Taiwan’s ports,” Yin says. “All this had a huge negative impact on the competitiveness of both Taiwan’s shipping companies and harbors.”

“On average, [the new rule] saves approximately 16–27 hours per voyage and cuts shipping costs by 15 to 30 percent. For 4,000 voyages per year, it amounts to yearly savings of NT$1.2 billion [US$36.4 million]. That really means a great decrease of time and costs for cargo shipments,” Yin says. “Local and international firms will now be more inclined to use Taiwan’s ports or their surrounding areas to develop logistics operations. They can also link up with airports to create sea-air, multimodal distribution networks and other high value-added activities. Consequently, our ports have a greater potential to become international distribution hubs,” he says.

Katherine Ko, a public relations officer at Taiwan’s Evergreen Group, which owns EVA Air and Evergreen Marine, says the shipping giant is one of the companies taking advantage of the new routes. “Evergreen Marine commenced shuttle services last December to transport cargo between major ports in Taiwan and northern mainland China,” she says. “Business is fine and seeing steady progress.”

“The challenges Evergreen Marine and EVA Air face are quite similar,” Ko adds. “We have to compete with mainland shipping companies, especially those small ones that emphasize lower charges rather than quality service.”

Taiwan’s tourism sector has seen immediate benefits from these direct links as well. According to the Tourism Bureau, between January and September of 2009, 989,316 Taiwanese traveled to mainland China, while 687,851 mainland Chinese tourists came to Taiwan.

“With travel time and costs greatly reduced and the number of flights and destinations increased, it is much more convenient for mainland residents to make trips to Taiwan,” says David W. J. Hsieh, deputy director-general of the Tourism Bureau. “Travel agencies and airlines also feel free to arrange more varied packages and promotions for tourists, thereby giving a big boost to the number of mainland tourists visiting Taiwan.”

In the first three weeks of regular flights from August 31 to September 20 this year, however, although the total number of passengers between Taiwan and mainland China was up, the average occupancy rate was just 58.6 percent, according to the Civil Aeronautics Administration.

“Flights to Beijing and Shanghai are often packed, while occupancy on flights to some less popular destinations is relatively low,” the CAA’s Lee Long-wen says. “It stands to reason that the growth in the number of passengers can’t keep up with the sharp increase of flights and destinations overnight.”

“The authorities from both sides should continue talks on increasing the number of flights for popular destinations, such as Shanghai and Beijing, to meet the real market demand,” Lee says.

Mixed Results

Anthony Liao, president of Phoenix Tours International Inc., agrees that the new flight routes are attractive to travelers and travel agents, but the results of the new regulations are still varied. “So far, for domestic travel agencies, the benefits of direct cross-strait regular flights have not reached expectations,” Liao says.

He also notes some of the unforeseen difficulties the industry faces under the new arrangements. “When receiving mainland tourists, Taiwanese travel agencies have to pay for their hotel accommodation in advance and then wait to be repaid by the mainland ‘tour wholesalers’ one to three months later,” Liao says. “In other words, the more mainland tourist groups you receive, the more cash you have to tie up, which also means the more financial risk you might encounter.”

Jason Wu, a Taiwanese businessman who often flies to Shenzhen in mainland China, also has mixed feelings about the current lack of flights on some routes. “Before cross-strait direct flights began, I used to fly to Hong Kong first, then took a boat to Shenzhen. That was quite inconvenient. Even now, sometimes I still have to stop over in Hong Kong because flights to Shenzhen are not so frequent,” Wu says. “Plus, a direct flight from Taoyuan to Shenzhen still costs me almost NT$10,000 [US$303] and I really wonder why we consumers can’t enjoy cheaper ticket prices.”

Anthony Liao suggests the reason that tickets prices have not dropped is that airlines might be feeling the pinch in other areas. “Airlines are still reluctant to reduce their ticket prices. One reason I’ve heard about is that they have to make up for the losses of some previously lucrative routes, such as the Taoyuan-Hong Kong and Taoyuan-Macau routes.”

A flight operated by TransAsia Airways prepares to depart from Taipei Songshan Airport carrying the first group of passengers via a direct route from Taipei to Shanghai on December 15, 2008. (Photo by Central News Agency)

In fact, China Airlines and EVA Air, Taiwan’s two largest airlines, revealed a monthly decline of 3.23 percent and 8.26 percent, respectively, in their total revenue for September 2009, according to a website operated by Taiwan Stock Exchange Inc.

Evergreen’s Katherine Ko says that income on cross-strait routes is up for EVA Air, however. “Thanks to expanded flights and destinations, EVA Air has seen a revenue increase of about 30 to 40 percent in cross-strait passenger and cargo transport for September compared with the previous charter flights,” she says. “We still face intense competition from the other Taiwanese and mainland airlines, though,” Ko says. “Since a price war seems unavoidable, we will place a special emphasis on our brand promotion and flight services.”

Passenger cruises provide another means of travel for mainland tourists. Younger Wu, a professor of transportation economics at Technology and Science Institute of Northern Taiwan, is eager to see the growth of such tours. “With direct cross-strait shipping, all a mainland passenger has to do is go to sleep and wake up in a seaport in northern Taiwan early the next morning,” he says.

Joshua C. Lo, vice president of the Excalibur International Marine Corp., which offers cross-strait passenger ferry services, also sees great market potential for the service. “As a pioneer of cross-strait cruise services, we hope to attract a large number of mainland tourists,” he says.

More to Be Done

Lo believes more needs to be done before ferry services can offer a fully competitive alternative, however. “Currently, we only provide irregular cruise services chartered by travel agencies. To compete with airlines, our cruises have to be high-speed, comfortable, and less costly.”

So far, the response to the opening of direct cross-strait transportation links is generally positive. Yet challenges lie ahead. Businesses in mainland China are also affected by the links, and in fact, the relationship between the two sides can be interpreted as both cooperative and competitive.

One prospect is strategic cross-strait alliances that could create marketing advantages for partners from both sides. “For the airline industry, the mainland holds clear advantages in its vast market and dense inland flight network, while Taiwan has the competitive edge in its high-quality service and management capabilities,” the CAA’s Lee Long-wen says. “There is certainly room for strategic alliances between airlines from the two sides, such as cooperation on joint ground service, ticketing and marketing.”

Meanwhile, the ROC government is planning major construction projects such as large-scale renovations at Taiwan Taoyuan International Airport and the development of the airport into a global logistics hub. These measures are expected to give new energy to the operations of the international airport.

In terms of shipping, the MOTC’s Yin Chen-pong says a more efficient division of labor is required for Taiwan’s main international ports. “For instance, with a prime geographic location along trade routes between Northeast Asia and Southeast Asia, Kaohsiung Harbor is well equipped to serve as a regional logistics center. On the other hand, since Keelung Harbor is near the political, economic and consumption center in northern Taiwan, it is suited to develop into a main port for high-value commodities.”

Organizational reform of Taiwan’s harbor bureaus is also necessary, says Younger Wu of Technology and Science Institute of Northern Taiwan. “It goes against the world trend that these bureaus are in charge of navigation affairs and conduct business with the shipping companies at the same time,” the professor says. “A separation of these functions is vital to meet the requirements of the global shipping market.”

Tour Taiwan

As far as the tourism industry is concerned, the Tourism Bureau has been carrying out the Tour Taiwan Years 2008–2009 Plan by integrating government and private sector resources to promote various travel products and attract international publicity. In April 2009, the Executive Yuan passed a resolution to include the Project Vanguard for Excellence in Tourism into its Development Plan for Six Key Emerging Industries. With a vision of creating a high-quality tourism environment, this project also aims to attract mainland tourists with a special focus on in-depth regional tours, fine cuisine and healthcare.

The Tourism Bureau’s David W. J. Hsieh says the pace of development should continue for now. “So far, mainland tourists still have to enter and leave the ROC in groups and the daily cap of 3,000 people remains unchanged,” he says. “For our government, a gradual process of liberalization is more appropriate at this stage. Necessary adjustments will be considered when the time is ripe.”

“Opportunities are only for those who are well-prepared,” Lee Long-wen emphasizes. Indeed, for Taiwan’s industries, direct transportation across the Taiwan Strait poses challenges as well as opportunities. To take a broader perspective, this turning point also gives the government a chance to review existing policies and laws and upgrade infrastructure. Cross-strait industrial cooperation is a long-term trend for Taiwanese businesses aimed at enhancing their competitiveness. With the recent cross-strait agreements, Taiwan’s transportation companies are also becoming more competitive, which should open the door to more opportunities in the future.

Write to Dennis Chang at dennis0602@mail.gio.gov.tw