Morgan Stanley said trucking’s supply side is producing the “spark” needed for a recovery next year, but acknowledged it will take improved demand to fan the flames.
The investment firm noted on Monday that the past three trucking upcycles started with a supply-side catalyst. It pointed to precursors to the 2014 (polar vortex), 2018 (electronic-logging-device mandate) and 2020 (Covid and the Drug and Alcohol Clearinghouse) recoveries, which were quickly supported by positive inflections in demand.
Heightened regulatory enforcement on the driver pool (English-language proficiency requirements, non-domiciled CDL restrictions, and ELD and driver school crackdowns) could remove more than 5% of industry capacity, Morgan Stanley (NYSE: MS) es…
Morgan Stanley said trucking’s supply side is producing the “spark” needed for a recovery next year, but acknowledged it will take improved demand to fan the flames.
The investment firm noted on Monday that the past three trucking upcycles started with a supply-side catalyst. It pointed to precursors to the 2014 (polar vortex), 2018 (electronic-logging-device mandate) and 2020 (Covid and the Drug and Alcohol Clearinghouse) recoveries, which were quickly supported by positive inflections in demand.
Heightened regulatory enforcement on the driver pool (English-language proficiency requirements, non-domiciled CDL restrictions, and ELD and driver school crackdowns) could remove more than 5% of industry capacity, Morgan Stanley (NYSE: MS) estimates. The latest mandates could be the catalyst to tip the scales for an industry that has been purging capacity due to untenable operating conditions (excessive cost inflation and depressed rates).
“We believe Supply tightening as a result of new driver regulations is real and sustainable and will put a rising floor on rates in 2026,” Ravi Shanker, Morgan Stanley transportation equities analyst, told investors in a 2026 outlook report. “While Demand will need to fuel the fire, the spark provided by Supply could be meaningful as we have seen in prior upcycles.”
SONAR Truckload Rejection Index – Van (STRIV.USA) for 2025 (blue shaded area), 2024 (green line) and 2023 (pink line). A proxy for truck capacity, the tender rejection index shows the number of loads being rejected by carriers. Current tender rejections show a truckload market that is inching closer to equilibrium. To learn more about SONAR, click here.
Shanker’s 2026 base case calls for only normal seasonality in demand, following an 18-month “non-cycle,” wherein “2025 was a bust … as tariffs played havoc with inventory plans.”
He said a proprietary survey of shippers “showed some level of restocking off the 1H25 lows” during the third quarter, with the percentage of shippers planning to increase inventories jumping from 9% to 23%. However, only 8% surveyed said they plan to build inventories for full-year 2026.
“While the outlook for a restocking upcycle looks more inevitable than ever for 2026, we acknowledge that there is no clear and explicit catalyst to rely on and headline risk remains high, so we are not counting on a Demand recovery in 2026 (unlike our expectations for a pre-tariff restock in 2025).”
SONAR: Contract Load Accepted Volume Index for 2025 (blue shaded area), 2024 (green line) and 2023 (pink line). The index measures accepted load volumes moving under contractual agreements. It excludes all rejected tenders. The index remains below prior-year levels.
Shanker’s base case includes a mid-single-digit increase in truckload contract rates during 2026, with a bull case for high-single- to low-double-digit increases if demand cooperates.
It may take the latter scenario to begin to restore carrier margins, which have been in decline for the past three years as operating costs have significantly outpaced rate increases. Most public carriers have implemented meaningful expense-reduction initiatives that are unlikely to be reversed as volumes return. However, demand remains squishy as bid season approaches, likely pushing a real recovery in rates (and subsequently margins) out a couple of quarters.
SONAR: National Truckload Index (linehaul only – NTIL.USA) for 2025 (blue shaded area), 2024 (green line) and 2023 (pink line). The NTIL is based on an average of booked spot dry van loads from 250,000 lanes. The NTIL is a seven-day moving average of linehaul spot rates excluding fuel. Spot rates are currently on par with year-ago levels even as new constraints on the driver pool (non-domiciled CDL restrictions and English language proficiency requirements) take hold.
Shanker upgraded his freight transportation industry view to “Attractive,” saying he believes the risk-reward setup is the most favorable since 2020 “even if the coast is not entirely clear.”
He cut numbers on the trucking companies he follows. However, his 2026 earnings forecasts are still 12% higher than consensus for TL carriers and 7% higher for less-than-truckload carriers. He said Knight-Swift (NYSE: KNX) remains his top tick across all modes, followed by contract logistics provider GXO (NYSE: GXO), truck lessor Ryder System (NYSE: R) and railroads Canadian National (NYSE: CNI) and Canadian Pacific Kansas City (NYSE: CPKC).
Shanker also upgraded LTL carrier Old Dominion Freight Line (NASDAQ: ODFL) to “Outperform” from “Equal-weight,” saying it is “primed to capture outsized share as demand inflects.”
Old Dominion has been able to push yields higher throughout the downturn. While margins have backed up, the yield growth is allowing it to produce industry-leading results. The company is already carrying the cost burden of operating with 30% excess network capacity and it has a history of taking market share during upswings.