Executive summary

Freight rates in shipping, similarly to other prices depend in general on differences between supply and demand. Demand in shipping changes daily, and supply is sluggish to adapt to this variations. The resulting freight rates are more variable than prices in general. The aim of this paper is to answer whether liner shipping companies can reduce variability of prices for integrated services by offering bundled prices, and whom this practice is likely to benefit. Cost determinants and the reasons behind freight variability will also be addressed. in addition the importance of vertical integration will be discussed. At the end of the thesis a set of practical considerations, deriving from interviews with industry experts will be presented and used to test the theory empirically. Ocean carriers in general are required to ensure enough capacity on their networks. This often results in excess capacity on certain routes as demand conditions change and capacity relocation or lay up is not possible. In times of economic downturns, even if capacity is partially taken out of the market, this results in to steep drops in freight rates and large losses. On the long run excess capacity might lead to increasing marke