Regular, direct weekend charter flights between the Chinese mainland and Taiwan began on July 4, as a result of an agreement reached between the mainland's Association for Relations Across the Taiwan Straits, and the Taiwan-based Straits Exchange Foundation. Six airlines from the mainland and five from Taiwan have been operating the weekend services. In the first four weekends since the launch of the service, a total of 144 round trip flights were flown, carrying 53,000 passengers with an average aircraft load factor of 87% of the available seats. Nieh Kuo-wei, a manager with EVA Air of Taiwan said that based on the initial demand, the carriers operating the new route were looking for more flights and destinations and would like to operate the route on weekdays too. Nieh said that on a typical weekend EVA was now carrying 10,000 passengers to and from the mainland, but that volume could be much higher if it was allowed to fly the route during the week. Cheng Jun, a manager with Shanghai Airlines took a similar view, noting that 'many Taiwan people can only take one-way weekend flights due to their personal schedules, and it has led to some market loss for airlines from both sides,' he was quoted as saying by Xinhua news agency. With Taiwan's private sector having invested over US$100bn in manufacturing operations on the mainland, and an estimated 1 million-plus Taiwanese living in China, the potential travel demand is significant. In this, BMI's latest Taiwan Freight Transport Report, we predict that cross-Straits traffic will be an important factor contributing to overall freight transport traffic growth, which should average 3.9% over the 2008-2012 period.

The rush of business towards the mainland affects all freight transport modes. The move is something of a mixed blessing for air freight, as we think Taiwan will, on the whole, lose business to China's emerging airport hubs. We forecast thus Taiwan air freight growth of a moderate 4.6% over the next five years. In the field of shipping, competitive pressures exist, but we are predicting that sea freight carried will grow by 4.7% per annum over the next five years nonetheless. In our view, Taiwan-based shipping lines are somewhat ahead of the game, having established themselves as global players. Road freight traffic on the island will evolve moderately, with average growth of 3.0%. 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 2.4% per annum.

BMI gives Taiwan a composite score of 52.0 (out of a potential maximum of 100) in its Freight Ratings 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 of Taiwan's freight transport industry. The total value of transport and communications GDP should rise to US$46.5bn in nominal terms by 2012, representing 7.1% of Taiwan's GDP.