A system and method for transmitting and bundling network packets is provided. The incoming network packet size is determined and if the remote buffer space is sufficient to hold the network packet it is transmitted to the destination port. If the remote buffer space is not enough to hold the network packet it is discarded. The system includes an arbitration module that receives remote buffer space information and transmits the network packet if the remote buffer space has enough space to hold the packet. The arbitration module also determines if a second network packet is from a same source port having a same source virtual lane, and has the same destination virtual lane (bundling conditions). If the second network packet meets the bundling conditions, then it is transmitted after the first network packet, even if other packets were received before the second network packet.