Current Status of Taiwan's Transportation and Shipping Industries Under the Epidemic
Transportation and Shipping Industry
Transportation is a derivative economic behavior. Most transportation is carried out to fulfill certain economic behaviors, such as going to work, school, business trips, tourism, etc. The transportation and shipping industry can be roughly divided into five categories: container shipping, bulk shipping, freight contracting, container transportation collection and warehousing, and land, sea, and air mass transportation.
Container shipping is mainly based on regular routes. Most of the goods carried are manufactured products. Standardized packaging will deliver the goods directly to the receiver’s warehouse. There is no need to disassemble and load the goods on the way to reduce the operation time. Therefore, it has a high degree of compatibility with the global consumer market. The container shipping and air transportation industries are highly sensitive to oil prices. The balance of capacity, the trend of oil prices, and the collection of additional fees are all important keys to the company's profitability.Current status of Taiwan's transportation and shipping industry
In the first half of 2020, due to the impact of the COVID-19 outbreak, the global economy was in chaos, commercial activities were suspended, and international oil prices also plummeted due to the impact of the epidemic. Crude oil prices plummet from approximately US$60 per barrel at the beginning of the year to a low of approximately US$19. However, as the epidemic slowed down and economic activity resumed, the international crude oil price in the second half of 2020 rose to the highest level since 2020, close to US$50 per barrel. The main reason was the anticipation of the US economic stimulus plan and the response to COVID-19. The expectation of vaccines has caused an ignorance of the still serious epidemic, and the impact of increased oil supply has also led to an irrational rise in oil prices.
Observing the recent surge in ocean freight rates, the main reason is the "explosive rebound" in European and American import demand from Asia, which has caused a serious imbalance in the supply and demand of the container shipping market, resulting in an increasingly serious shortage of containers and ships. The maritime industry has also erupted in a battle for containers, resulting in a sharp increase in freight rates. The current lack of containers and space in the shipping market has also increased the revenue and profit of shipping companies and freight forwarders. The fourth quarter is originally a low season, but as time goes by, Europe and the United States are due to the peak with the Christmas shopping season. There has been a surge in online shopping consumption, coupled with the signs of a resurgence of the epidemic, which has led to an increase in the import demand for personal protective equipment. Also, Brexit has triggered a wave of stockpiling. Retailers hope to step up replenishment before the year-end holiday. It's a hard-to-find phenomenon in the transportation market. According to statistics, in the third quarter of 2020, the volume of containers shipped from Asia to Europe has increased by 20% compared to the second quarter, and the freight rate of 20-foot dry containers from Asia to Europe has soared to a 10-year high, indicating that the shipping market has entered a prosperous period.
Container shipping has always been regarded as a leading indicator of the economy. In the first half of 2020, the epidemic caused global economic activities to be shut down. However, as the epidemic was slowing down in the second half of the year, trade demand was booming, which also brought signs of optimism for the trade performance throughout the rest of year. Since the beginning of the third season, the epidemic has changed the structure of shipping. Due to the epidemic, countries in Europe and the Americas have changed to working from home, which has led to a significant increase in the demand for fitness equipment, lawnmowers, and all kinds of recreational supplies. With all kinds of activities occurring at home, it has further driven the growth of demand for the home products. With the tight supply and demand of container shipping, it has also changed the overall market structure of container shipping.
At present, global container manufacturers are mainly concentrated in China, and in the first half of 2020, due to the impact of the epidemic, there was no container building at all. Therefore, even if the volume of transportation increases, it will not be able to increase rapidly. The container industry has spontaneously adjusted and reduced the supply before, and the freight rate was maintained at a reasonable level. Container shipping has been in a slump for nearly a decade, and as the overall market demand has increased, the supply chain has been overloaded, which is the main reason for the explosion of operations in the second half of 2020. In addition, the COVID-19 epidemic in winter has been heating up, which has also caused European and American ports and transportation logistics to be affected by lack of labor, increasing the difficulty of container dispatch. Therefore, the top ten container shipping companies have successively announced plans to increase container shipping prices on various routes around the world. European and American routes have increased significantly, which is quite beneficial to ocean shipping. Since 2020, shipping rates in Southeast Asia have risen by 363%, ANZ Airline has risen by 155%, West America has risen 172%, East America has risen 82%, and Europe has risen 60%. It is estimated that the prospects for container shipping are promising. Although oil prices have rebounded, they are still relatively low compared to the past. Therefore, it is expected that the performance of container shipping will continue to grow through 2022.
Bulk shipping is used to carry bulk materials for people's livelihood, as well as basic industrial raw materials, such as iron ore, coal, cotton, grains, and fertilizers. The traditional peak season for the bulk shipping industry is from November to April each year, and summer is the off-season. In addition to natural disasters, trade-related laws, foreign policies, and oil prices are all important factors affecting the prosperity of bulk shipping. The bulk shipping rate index is an important indicator that affects the profitability of the industry. Depending on the ship type, the bulk shipping index can be divided into the Baltic Cape Shipping Index (BCI), the Baltic Panamax Shipping Index (BPI), and the Baltic Light Shipping Index (BHI). The Baltic Shipping Price Index (BDI) is the average of the above three indexes and is an indicator for overall bulk shipping. An important indicator of profit.
The biggest factors affecting bulk shipping freight rates and shipowners’ profits are the bulk cargo market demand and the global bulk material trade volume. In the first half of 2020, due to the spread of the COVID-19 epidemic around the world, China’s raw material import demand has declined. Coupled with the scrapping of old ships, the decrease in the number of solutions caused the BDI index to drop to 393 points, and the market was in a downturn. However, with the gradual improvement and implementation of epidemic prevention measures in various countries, and the resumption of factories driving demand for raw materials, cargo transportation has gradually returned to the right track. Traditionally, the third quarter is the peak season for grain shipments in North America. Coupled with the rising demand for iron ore in China, the world transportation demand is rebounding, and governments of various countries have begun to actively revitalize the economy. Expanding domestic demand and increased infrastructure investment are driving the rebound of the bulk market. China's construction and manufacturing industry rebounded rapidly, and port stocks fell to a three-year low, driving China's strong demand for iron ore imports during the second half of the year, which is traditionally peak season for bulk shipping. The BDI index continued to rebound since mid-September 2020, rising to 2020 levels in October, with an increase of more than 8%. The daily charter of Capesize boats has also risen since late September, with the average rents reaching 33,000 US dollars.
2020 is the first year of the implementation of the "0.5% Low Sulfur Oil Convention" stipulated by the International Maritime Organization (IMO). Although it will increase the cost of new ships, the price difference between high and low sulfur oil, which the bulk shipping industry uses, is smaller than expected. Low-sulfur oil is currently the main component used, and new ships have reserved space for the installation of desulfurization equipment. Although the international crude oil price rose in 2020, it is still at a relatively low point. Looking forward to 2021, from the perspective of transportation demand, global economic prosperity has gradually recovered from the bottom. In the future, port operations will coexist with epidemic prevention measures. In the short term, the operation process will be slower, affecting the actual maritime capacity and supply and demand markets. But in the future, with demand for transportation returning to normal, global trade the bulk shipping will return to its sustained growth trend.
Sea, land, and air freight contracting is responsible for import and export of cargo, customs declarations, warehousing, and automobile freight services. Container transportation collection and warehousing refers to the transportation, lifting, unloading, and storage services of cargo and empty containers.
The container transportation and warehousing industry is mainly engaged in the operation of container terminal business and container maintenance. The container terminal refers to the site where customs is completed, containerized cargo is registered, stored, and distributed. It also engages in import, export, transshipment, and storage of containers. moving, and processing. In 2020, when the COVID-19 epidemic hit the global economy and financial markets, many industries were stricken, but the air cargo contracting industry was one of the few industries that were hot in the market. The epidemic has caused chaos in the rhythm of the global industrial chain. There were cutoffs and disconnections in all parts of the world. How to deliver goods to customers became an issue of concern for enterprises. When the transfer of goods by sea or land became a problem, companies turned to air cargo for delivery of customer's cargo.
For the logistics industry, the COVID-19 epidemic has caused extreme market changes and created entirely new demands. Benefiting from the rapid growth of the housing industry, coupled with the launch of new electronic products in the fourth quarter, the demand for global logistics services should remain strong.
Affected by the Sino-US trade war and having encountered the COVID-19 epidemic, many Taiwanese manufacturers have returned to Taiwan. In the future, all industries will change. Enterprises will diversify risks, move part of their production capacity out of China, and reorganize the industrial chain to build diversification. It is expected that the demand and supply of the cargo contracting industry will increase greatly. The volume of containers being loaded and unloaded by warehousing companies has increased, and the number of factories and warehouses in port areas has also increased. Many warehousing companies are actively expanding investment plans to include the construction of logistics parks, plant construction, and even direct business transformation. As Taiwanese businessmen return, bringing huge plant leasing and warehousing needs, future business opportunities cannot be underestimated. After all, in the post-epidemic era, only by making good use of high technology, using AI artificial intelligence, collaborating with the Internet of Things, and combining system automation, can the industry be more competitive and irreplaceable.
The aviation industry is the industry most affected by COVID-19 in 2020. As countries around the world lockdown cities, close borders, and implement no-fly orders, passenger capacity has plummeted, and many airlines around the world have closed or grounded planes one after another. At the end of 2020, the estimated loss may reach 100 billion U.S. dollars and 500,000 people will be laid off; the negative impact of the aviation industry by the epidemic has been greater than expected. Taking Taiwan Taoyuan International Airport as an example, the passenger volume from 2020 to the present is only 3% of what it was during the same period in 2019.
According to statistics, only four of the world’s top 30 airlines recorded a profit in their second-quarter financial reports. Taiwan’s success in epidemic prevention, plus China Airlines and Evergreen Airlines using their fleets for cargo transportation has allowed these airlines to remain profitable. With electronics and medical protective equipment production concentrated in Asia, and air freight service being in short supply, four Asian based airlines were able to assume cargo services and record a profit during the epidemic. According to the forecast of the International Air Transport Association (IATA), the international aviation market will not return to the level of 2019 until 2024, and it is estimated that in 2020 alone, global airline losses will exceed 84 billion U.S. dollars.
However, after this wave of epidemics, the aviation demand will change in the future, and the aviation industry will also face the need for transformation. Freight forwarding is relatively well predicted. For passenger transportation, with teleconferencing replacing business meetings and negotiating, business travel will inevitably decrease. While the demand for flying back home, studying, or visiting relatives and friends is relatively stable; the demand for leisure travel, will not recover until the epidemic is over. Therefore, airlines urgently need to think about new operating models in the future.
Overall, in the post-epidemic era, due to the epidemic prevention, business operation efficiency is low, the economy is in recession, and people's confidence in international travel has not been restored. Therefore, the strong cargo business and relatively low fuel prices will also promote the development of the aviation industry. But for airlines using low-cost strategies to stimulate the return of passengers, profits are relatively reduced. The aviation industry must actively seek innovation and transformation possibilities to increase added value to attract customers. Increasing digital innovation and non-contact catering to order food, or through personal devices, non-contact Payment systems, and facial recognition technology to provide in-flight entertainment, etc., may increase the willingness of passengers to fly. During the epidemic, countries and regions have different epidemic prevention rules, and uncontrollable risks are the main reasons why people are unwilling to travel by air.
Low-cost airlines have sprung up at low prices, making international travel easier and cheaper, and everyone can go abroad at any time. Basically, low-cost airlines only provide seats, so can be cheaper than traditional airlines. Other related services such as checked baggage, in-flight meals, wireless internet, etc. need to be paid for separately. Due to cost considerations, low-cost airlines mainly operate shorter, 4 to 5 hours flights. Regional routes are mainly used, to reduce the fleets’ maintenance costs. Low-cost airlines are still profitable due to their greater flexibility in fares and destinations.
Tiger Airways Taiwan is currently the only low-cost airline in Taiwan. It is a subsidiary of China Airlines. Its main routes are Japan, South Korea, and Southeast Asia. Tiger Airways was hit hard by the COVID-19 epidemic, but it is also actively exploring new business models, including outlying island tours, lease of aircraft to other airlines, and submission of cabin cargo applications to the Civil Aviation Administration, becoming the first domestic single-aisle passenger aircraft to carry out cabin cargo loading. It also launched an "aviation experience camp" and a micro-travel itinerary of "no landing, like going abroad." The launch of an e-commerce platform that will sell unique products to grab customers and expand business opportunities is another new service.
Affected by the epidemic, the number of tourists visiting Taiwan in 2020 was its lowest in 40 years. Due to strict border controls imposed by various countries, tourists cannot travel freely. However, the industry can use this to step up the improvement of tourist attractions and facilities, enhance the overall quality of tourism services, guide the tourism and accommodation industry to strengthen brand image, continue to use the Internet to promote international communication, exchanges, and cooperation, and ensure that when the future is open to tourism, it can provide passenger safety so the tourism environment will attract more international tourists to Taiwan for sightseeing.
With the innovation and development of technology and changes in consumption patterns, airlines continue to evolve and bring forth the new. In terms of innovative applications of technology, the aviation industry has also begun to use emerging technologies including augmented reality (AR), blockchain (Blockchain), and cloud. Digital trend technologies such as computing, big data, artificial intelligence (AI), and the Internet of Things (IoT) are used to improve efficiency and reengineer the industry to improve the flight experience of passengers.