STRENGTH OF TAIWANESE DOLLAR MAY HURT NATION'S SHIP LINES

STRENGTH OF TAIWANESE DOLLAR MAY HURT NATION'S SHIP LINES

Shipping companies in Taiwan may be looking at smaller profits this year as the effects of the sharp appreciation of the local currency begin to have an impact on exports.

Taiwan's US$16.9 million trade surplus with the United States in 1987 has made it the No. 2 target after Japan in the war to reduce the ballooning U.S. trade deficit.Under U.S. pressure, the New Taiwan dollar has appreciated some 40 percent since January 1986, first from NT$40 to US$1 and then to around NT$28 now.

This had little impact on exporters until recently because the central bank allowed them to lock in fixed exchange rates months before the actual transaction.

That policy ended last July, but the real impact of the appreciation on Taiwan's exporters wasn't apparent until recently.

In fact, the appreciation of the new Taiwan dollar had a positive effect for much of 1987. With the currency on a fast and sure upward climb, overseas buyers were rushing orders to beat the rise.

In 1986 48 percent of the island's total exports went to the United States. This proportion dropped to 44 percent in 1987 and is expected to fall even further as the Taiwan dollar rises to as high as NT$25 to US$1 by the end of the year.

Taiwan's ship lines - especially Evergreen Marine Corp. and Yang Ming Marine Transport Co. - will be hurt the most by the appreciation. Their earnings are mainly in U.S. dollars, while their expenses are in Taiwan

dollars.

Furthermore, Taiwan, once a leading supplier of merchant sailors to the world, is finding it difficult to recruit enough to man its own ships because pay is based on the U.S. dollar.

Amid all this, Evergreen and state-run Yang Ming are expanding.

Evergreen is taking possession of three new ships, bringing its fleet to 66 and representing a doubling since 1983. Yang Ming received six of eight new containerships last year, with two to be delivered this year.

The real problem is the additional capacity coming on in a market that's not growing, one industry analyst told The Journal of Commerce. This will have an impact on the profits of all carriers.

American President Lines and Sea-Land Service Inc. will be in a better position in 1988 as they move into new berths with the right to own and operate their own equipment.

Previously, all terminal equipment had to be rented from harbor authorities and all cargo handled by government-owned China Container Terminal Corp.

Sea-Land hopes to take advantage of its improved facilities by moving more of its relay business to Taiwan from Singapore, Thailand and other places in the region.

Gary Ritzman, Sea-Land's local general manager, says the line has improved its efficiency and he is optimistic about the position.

Our business is ahead of last year and we expect it to remain ahead, he said.

With exports to European Community nations climbing to US$7 billion in 1987, an increase of 63 percent over 1986, some shipping lines are switching ship capacity out of U.S. trade. Yang Ming already has done so and Evergreen soon may follow.

Carriers are anticipating that trade with the United States will be reduced this year, an industry observer said. Therefore, they are beginning to better utilize their ships by changing them to European service. Because of this, we also expect competition in European trade will become very strong.

But since Taiwan's exporters still depend heavily on the United States, much will depend on how the two sides handle current trade problems.

Despite progress made in opening up local markets, recent events appear to have put the two back on a collision course.

In January tariff rates on more than 3,500 import items were reduced by an

average of 50percent. Although U.S. trade officials describe that as significant, Washington is still disappointed.

Taiwan's government had promised reductions on specified items, but many of those either remain the same or actually went up.

The levy on fresh lemons, which was to be reduced to 40 percent, was pushed back up to 50 percent; that on sunflower seed oil, which was to be cut to 20 percent, ended up at 50 percent. And tariffs on jams, jellies and most fruit juices remain at a high 45 percent.

U.S. trade officials are now concerned about the possibility of a quota on fruit imports from the United States.

Taiwan's fruit growers are suffering from plunging prices brought about by bumper crops, lower tariffs and the appreciation of the currency. In 1987 110,000 metric tons of fruit were imported, up 51 percent from the corresponding period of the previous year.

The government bowed to the demands of increasingly vociferous farmers in

December, announcing a ban on fruit imports from countries other than the United States.

This failed to appease farmers - since the United States accounts for 60 percent of fruit imports - and officials now are considering quotas on U.S. produce.

Such a move would only exacerbate trade friction and could lead to retaliatory action from the United States.

Taipei was caught by surprise when Washington announced that it would be graduated from the Generalized System of Preferences, or GSP, next January.

With an estimated 17 percent of its exports to the United States in 1987 under the GSP, Taiwan was its largest beneficiary. The cutoff may increase exports this year as companies rush to take advantage of the GSP before it runs out.

On the positive side, imports by Taiwan are rising sharply as a result of the currency appreciation and government moves to ease tariffs on many items.

Imports for January were up 98 percent over the same period of last year and are likely to continue rising.

We expect import volume to increase at a faster rate, said James Chow, general manager of Wilhelmsen Agencies Inc., general agent for several shipping lines.

But overall import volume won't be good enough for carriers to make effective use of their inbound space, he said.

Mr. Chow said 35 percent to 40 percent of inbound space is still unused, so it will be difficult for shipping lines to increase rates. In the long run, we expect this year to be a tough one.