When a company no longer needs to grow bigger to obtain economies of scale in order to increase profitability, what it may try next is to develop specialised products to boost its margins.
Already the world's second-largest container maker that accounts for 21 per cent of global container production, Singamas Container Holdings has turned its attention to the development of specialised products, hoping it would earn a pay-back in two to four years. The result is a tank container, which costs about 280,000 yuan (HK$312,872) per unit and generates a gross margin of about 10 per cent, double that of a conventional container.
'Chemical transportation in China is not as regulated as it is in Europe, where there are 100,000 tank containers in use, while China just has 1/10 of that volume,' said Singamas vice-chairman Teo Siong Seng in Shunde last week.
Most mainland trucking companies use road tankers to transport chemicals. Such tankers are commonly used since they cost about 180,000 yuan, or just 2/3 of the price of a tank container. However, road tankers, which do not comply with safety standards, have caused many accidents in the past few years, say critics.
In partnership with the Netherlands-based Flax Field Trading (FFT), Singamas adopted FFT's tank container design and set up a designated plant in Shunde that will produce 3,000 units this year, up from about 1,200 units last year.
The partners are now planning to set up a second tank container plant in Shanghai, boosting production capacity to 10,000 annually by 2010.