Shifting out of a freight recession?

The big subject in transportation is looking to signals that may suggest an upturn in the market, views on supply/demand balance and thoughts on the state of excess capacity and shipper inventories, all in an attempt to understand the potential to bounce out of this elongated freight recession. We have conducted a biweekly truck shipper survey for the past 15 years to gain real-time insights into where we are on the macro backdrop. The survey has an 82% correlation in leading ISM by a month and a 0.7 r-squared, which tells us it is a pretty good statistical forecasting metric to gain insight into the state of the industrial and consumer economy in the U.S. It’s a leading indicator as early cyclical trucks move 73% of all tonnage and represent ~82% of dollars spent on transportation in the United States. Given that backdrop, we have been in a freight recession for more than 3-plus years (since mid-April 2022), as our demand indicator has remained below the growth signal of 60 since April 2022 and, for all but 18 of the past 86 issues, has been below 54.2, the average of the prior 3 freight recessions in 2012, 2015 and 2019.

 

With our demand indicator highlighting too little demand, our capacity indicator suggesting excess capacity is fading away, but only to a point of market equilibrium, and our inventory indicator (shippers’ views of their own inventories) moving toward a historically balanced level after years of elevated inventories, the focus remains on what can improve demand. The Trump administration’s recent Big Beautiful Bill incorporated investment tax credits (bonus depreciation) that could encourage future investment, driving goods demand. Recent tariffs are working to encourage additional domestic investment, which could also lead to additional freight transportation demand, while a key change would be lower interest rates driving housing and auto demand.

 

The demand indicator has moved off the lows of Spring 2025, when tariff implementation raised fears of a recession, given pressure on consumer activity. Nevertheless, it continues to struggle to rebound above a level of 60, which would be a growth indicator. When we see that increased confidence from shippers, we would increase our focus on early cyclical stocks, such as truckload and intermodal-related transport carriers, which are more focused on consumer activity, as well as less-than-truckload carriers, which are more manufacturing/industrial weighted.

 

In the interim, we have the railroads, which have been focused on improving service levels since 2021–2022 and have won relative share from the trucking carriers over the past 5 quarters. Despite a soft truck backdrop, the rails continue to gain share and pricing as their own metrics continue to improve. Given the current Trump administration’s views on increasing domestic investment and improving infrastructure focus, we are watching landscape-changing M&A discussions in the rails, which, if successful, can lead to the first-ever U.S. transcontinental railroad. Implications of transcontinental service can continue to increase the competitiveness of rails vs. trucks, led by improved service (reduced time in transit due to the elimination of interchange delays) and reduced cost to serve (through increased efficiency and longer-length hauls that yield better cost-to-revenue ratios).