Whereas the stable freight rates which liner conferences endeavour to supply may have the positive consequence of reducing the risks of international commerce by allowing forwards contracts to be made with relative certainty as to the price of freight , they also have the negative effect of letting changes in demand generate wide fluctuations in the quantities carried. This in turn translates into an inefficient usage of capacity with consequential detrimental effects on the allocation of resources in the industry. A more flexible, or peak load pricing policy, in contrast, by rationing space in high demand periods through a rise in prices and encouraging use in off peak periods through a fall in prices, would much more effectively facilitate an efficient utilisation of capacity and therefore a desirable allocation of resources. But prices in liner shipping are discriminatory. Consequently, assuming customary profit maximising behaviour, it may be that in peak demand periods when capacity is constrained liner companies carry relatively large amounts of high paying cargoes, ignoring low paying varieties, whereas in off peak periods when capacity is freely available as much low paying cargo will be carried as is possible. If this is the case then even though freight rates remain stable, space will be rational as in a peak load fashion, with the discriminatory selection of cargoes having the same effect as demand induced changes in the price level. This paper investigates the nature of this possibility and tests for its presence on the Canada/U.K. trade. (A)
Abstract