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Wan Hai buying into Chinese line

Wan Hai buying into Chinese line

Taipei: Taiwan's Wan Hai Lines is in talks to invest in a Chinese shipping company to expand its network and offset the severe industry downturn that could cut 30 percent off its revenue this year, Dow Jones reported.

Wan Hai Lines, the largest container shipping firm on intra-Asia routes by market share, has been cutting capacity on the Asia-Europe route and restructuring its network because of the slump in global trade and vessel overcapacity that has decimated freight rates and profit, company president Tony Chow said.

An investment in a Chinese shipping firm would allow Wan Hai Lines to capitalize on the expected growth in China's river transport and trade between China and Southeast Asia, Chow told Dow Jones Newswires in an interview.

"We are positive on the domestic demand stimulus package implemented by the Chinese government, which will also create intra-Asia cargo as China and Asean remove trade tariffs," he said.

Chow declined to name the Chinese company, but said a conclusion to the talks isn't imminent as Wan Hai Lines wants a stake of at least 51 percent in the firm.

"The size of the stake is the main contention point," he added.

While Taiwan and China agreed on closer transport links in November, including launching direct daily charter flights and direct shipping links, there are still some restrictions on cross-strait business.

The Taiwanese government prohibits investment in container terminals on the mainland, and while both sides agreed to allow each other to open branch offices, the offices can only deal with cross-strait cargo. This means Wan Hai Lines must first ship Chinese cargo to a Taiwanese port before carrying it to a third destination, said Chow.

Investing in a Chinese liner will give Wan Hai Lines, which has 20 offices in China that it opened via its Hong Kong units, instant access to China's river cargo, or cabotage, he said. "There's a lot of coastal and Yangtze River cargo that we can't do now."

By March, Wan Hai will return chartered ships to cut its capacity by 19.1 percent to 66 ships, or a total of 116,208 TEUs, down from 81 ships in the first half of last year.

The company's 2008 revenue rose 9.9 percent to a record US$1.87 billion as its total carried cargo volume rose 6.5 percent to 2.96 million TEU.

But this year, cargo volume will likely fall 15.5% to 2.50 million TEU, and revenue may fall as much as 30% as rates on intra-Asia routes started falling in the second half of last year, Chow said.

"If you don't scale down, you're going to loss big," he said. [26/02/09]