According to an analysis from Morgan Stanley, the trucking industry’s supply side is producing the conditions needed for a recovery next year, but acknowledged it will take improved demand to sustain it. The investment firm noted that the past three trucking upcycles started with a supply-side catalyst, pointing to precursors to the 2014, 2018, and 2020 recoveries, which were quickly supported by positive inflections in demand.

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Morgan Stanley estimates that heightened regulatory enforcement on the driver pool could remove more than 5% of industry capacity. The firm stated that the latest mandates could be the catalyst to tip the scales for an industry that has been purging capacity due to untenable operating conditions.

“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.”

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,” the report stated.

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. The report noted that 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 out a couple of quarters.

Source: IndexBox Market Intelligence Platform