City Research Online

Abstract

We investigate the channels through which changes in operating capacity influence freight rates in the container shipping market using a novel dataset to create an operating capacity index at shipping-route level. Our analysis reveals that when supply elasticity is low, an increase in operating capacity tends to drive freight rates upward, as the market faces constraints and cannot easily accommodate additional demand. Conversely, when supply elasticity is high, an increase in operating capacity generally leads to lower freight rates, since additional capacity can be deployed to meet rising demand, preventing price surges. These findings suggest that shipping companies strategically adjust capacity based on market conditions to optimize profitability, shifting between price and quantity competition depending on route characteristics and supply elasticity.

Publication Type:	Article
Additional Information:	© 2025 The Author(s). International Journal of Finance & Economics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords:	International Trade; Container Shipping Markets; Freight Rates; Operating Capacity; Supply Elasticity; Marginal Cost; Capacity Planning.
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Faculty of Finance
SWORD Depositor:	Symplectic Administrator

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