January 6, 2026 • 28 mins
Global freight markets face another challenging year from geopolitical tensions, uncertain trade policies and slack capacity. In this episode of the Talking Transports podcast, Bloomberg Intelligence senior transportation and logistics analyst Lee Klaskow shares how 2026 may play out for North American trucking, railroad and freight brokerage markets, as well as the global parcel and shipping sectors. An acceleration in the rate of capacity leaving the truckload market could ripple across less-than-truckload, freight brokerage and railroad industries, setting up for a better year than 2025. Technology-driven productivity investments could help offset a tepid demand backdrop and support improved margins. Supply growth is expected to outpace containerliner demand, which will weigh on rates and earnings.
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Speaker 1 (00:07):
Hi everyone, this is Lee Claskal and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskow, senior Freight transportation logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists around the world. A quick public service announcement
before we dive in. Your support is instrumental to keep
(00:27):
bringing great guests and conversations to you, our listeners, and
we need your support, so please, if you enjoy this podcast,
share it, like it and leave a comment. Also, if
you've got ideas, feedback, or just want to talk transports,
I'm always happy to connect. You can find me on
the Bloomberg terminal, on LinkedIn, or on x at Logistics. Lee.
This is our first episode of twenty twenty six, coming
(00:50):
back from a short hiatus, and I want to take
a moment to wish you all in your family is
a very happy, healthy, and prosperous new year. I look
forward to bringing you more interesting conversations with decision makers
within the freight, transportation and logistics industries. Today, we're going
to do something a little different. I will be your
host and guest, yes you heard that right. We're going
(01:12):
to share with you our twenty twenty six outlook for
the freight markets, which we published in December. For those
that want to take a deeper dive into our outlooks,
they could be found on the Bloomberg terminal at big
And Before we look ahead, it's always good to see
where we came from. We would characterize twenty twenty five
(01:32):
as a year of significant uncertainty as it pertained to
the more protectionist policies of the Trump administration. This was
not the backdrop needed to help get the freight markets
out of aduldrums. The freight markets were also dealing with
other geopolitical risks in the Red Sea Wars raging between
Hamas and Israel and between Russia and Ukraine, and this
(01:56):
backdrop really weighed on freight stocks. You look at the
S and P five hundred, which was up around seventeen
percent in twenty twenty five, they really outperform the freight markets.
The best performing subcategory that we look at was the
bi express peer group, which is really FedEx ups and
Deutsche Post, which was up thirteen percent, still underperformed the
(02:20):
broader markets by foreigner basis points, but was the best performing.
That was followed by our rail peer group, which was
up eight percent. Then finally, the Truckload peer group and
the LTL peer group were down for the year. The
Truckload peer group was down eleven percent in twenty twenty
five and the LTL peer group was down thirteen percent.
(02:41):
You know, we've seen some recent strength since I would
say late November. This is really on the backs of
I guess, more optimism heading into the new year, especially
as it relates to the trucking market. Also, you know,
the economic backdrop has not been really really good. You know,
(03:02):
we have inflationary pressures, you know, just like we always
like to talk about eggs egg CPI. You know, that
has been down from its peaks, but it's still a
high relative to historical values. You Know, you have the
thirty year mortgage which has been trending down since the
beginning of twenty twenty four, but you know, still remains,
(03:23):
you know, above that six percent mark. And then you
have consumer confidence which has been in the dul drums
as well. So you know, these things are just not
really painting a great economic outlook. And when I look
on the Bloomberg terminal at ECFC GO, I can see
consensus expectations for various economic indicators like GDP. So GDP
(03:43):
is expected to remain two percent and twenty twenty five
and twenty twenty six. Industrial production expected to accelerate slightly
to one point four percent growth from one point one
percent growth in twenty twenty five, and you have a
housing market that might increase ever so slightly. So you know,
it's not terrible, but it's certainly not not good either.
(04:05):
We would like to see, you know, GDP expectations accelerate
from the twenty twenty five level to be a little
more constructive on the demand side. So let's start off
looking at the sub segments within the freight transportation markets.
We're going to first start off looking at the truckload market,
and you know, the truckload carriers, you know, they've really
(04:27):
been hit by weak demand and weak price prices. We've
been in a freight recession for more or less four years.
We saw earnings adjusted earnings collapse for our BI truckload
peer group by forty eight percent in twenty twenty three
and another fifty one percent in twenty twenty four. Seeing
(04:48):
a slight increase this year and next year or should
say twenty twenty six, we could see a surge of
thirty nine percent in the median increase in adjusted earnings.
And you know, it's really the question that I think
a lot of people want to know is like, you know,
why is it growing so much? And it's growing so
much a because you know, you're going to have demand growth,
(05:09):
tep it, but demand growth, and you're gonna hopefully have
you know, some rates increasing, and that operational leverage that
these carriers will get really should drive to the bottom line. Also,
you could also get some better use prices for for
for their for their equipment that they're selling in the
secondary market. You know, supply is finally leaving the market
(05:31):
and it's being nudged towards the exit by the federal government.
We're seeing a real crackdown on English language proficiency non
dominancile driver licenses as well. And you know, when you
when you look at the numbers, there are roughly two
hundred thousand non domicile CDL holders out there in the
US and that's about seven percent of the driving pool.
(05:51):
And when you add in stricter ELD standards and the
crackdown on English language proficiency. We could see ten to
fifty teen percent of drivers being impacted and leaving the market.
While we don't necessarily think we're going to reach fifteen
percent of the market leaving overnight, you know, you could
see an acceleration in the exits that we've been seeing
(06:13):
that were driven primarily through bankruptcies. You know. Also, you
know we're not going to see as many drivers entering
the market because you've seen a crackdown on driving schools
with about three thousand training providers removed from the FMCSA
registry for failing to meet federal standards. And this will
reduce the number of drivers entering the market. So again,
(06:35):
that's really going to be good for the supply side,
and this should really drive utilization rates. We have data
from FTR on the terminal and their utilization rate for
the truckload market troughed at around eighty nine percent in
January twenty twenty two, and this is forecasted to hit
around ninety five point one percent in December of twenty
(06:57):
twenty five and then ninety six point two two percent
in twenty twenty six. And this is well above the
twenty year average of ninety one percent, and we're moving
into a seller's market and we haven't seen that in
a really long time. So, you know, we believe that
that the market is near equilibrium and these things that
we're seeing on the supply side should really push rates higher.
(07:21):
While we don't think again rates are going to increase
significantly higher early on in the year, we do think
that all gradual increase and you could see some positive
momentum of building towards the end of the second quarter.
You know, when you're looking at the LTL, the lesson
truckload sector, this is a more interesting sector for us
(07:42):
because at the end of the day, they have better pricing.
And the reason why they have better pricing, it's a
much more consolidated market and that is really driving their decisions.
And if certain businesses do not hit a certain ROI,
they're more than happy to walk away from that business.
You know. For twenty twenty six, Consensus is expecting twenty
(08:03):
two percent EPs growth on four percent revenue growth for
LTL peers that we cover, you know, companies like XPO,
Old Dominion, Saya, TFI, our Best. You know, they these
these carriers have really learned from the late two thousands
that using pricing as a weapon to gain share really
(08:26):
could backfire. And you know, it took a lot of
carriers years to reprice their business to get to those
rois that they really need to reinvest in their businesses.
So we don't think that carriers will be using price
to win share. And that's good because this discipline pricing
will likely offset flat to weak LTL demand in twenty
(08:48):
twenty six and help push revenue and earnings higher. There's
upside to consensus for revenue to increase a medium of
four percent for the peer group. On our kind of
more up pricing outlook, this could deal to d adjusted
EPs growth of around twenty two percent, which can halt
(09:08):
three consecutive years of earning declines. Pricing and productivity gains
are expected to drive slightly better margins, and it will
be the first annual improvement based on consensus estimates since
twenty twenty two. So twenty twenty six really shaping up
to be much better than we've seen it in a
couple of years for the LTL space, and any upside
(09:29):
will actually likely be driven by improved demand or productivity
initiatives at these individual carriers, And you know, it's worth noting.
You know why pricing discipline is so important is that,
you know, the industry is highly leveraged to pricing about
one hundred bases point declined and yield requires about three
hundred basis point increase in tonnage, and carriers will become
(09:51):
more mindful about managing yields and like I said, walking
away from freight that don't meet certain return on investment thresholds.
You know, we expect revenue P one hundredweight excluding fuel
search charges to be up by loads to mid single
digits next year, so it should be I guess I
would say a more constructive backdrop for the LTL market.
(10:13):
You know what's worth voting is that the ISM Manufacturing
index that's been in contraction territory thirty five of the
last thirty seven months, and this is really kind of
a good barometer for future LTL demand. So you know
what that is telling us is that at least over
the next couple of months, a demand when you're looking
(10:36):
at tonnage, should probably remain you know, depressed or down
year over year. Let's switch gears now. You know, we
talked about trucks, we talked about the truckload market. We
talked about the LTL market, you know, I want to
talk a little bit about the the rail market. You know,
North America railroad earnings growth looks poised to pick up
in twenty twenty six, but may fall short of double
(10:58):
digits amid uncertain tied to the Trump Administration's tariffs. Slack
trucking capacity and low diesel prices could also hurt domestic
intermodal results. Railroads will focus on yield initiatives and productivity
to drive margins against the tepid demand backdrop. The proposed
Union Pacific and Norfolk Southern merger will obviously dominate the
(11:21):
industry this year. It faces high regulatory hurdles and we
don't think approval is necessarily guaranteed. The prospects for the
Surface Transportation Board approval have brightened, though, we would say,
but our view remains below consensus. We put up probability
of fifty five to sixty percent that it gets approval.
(11:43):
This is higher than our last probability of forty five percent.
And you know, we believe the regulatory hurdles to prove
the deal will enhance competition. Is in the public interest,
is not a layup for the two carriers. You know,
But like I said, you know, our outlook has improved.
Reports that the Supreme Court may allow President Trump to
remove Rebecca Kelly Slaughter from the FTC despite legal precedents
(12:09):
for independent agencies. The ruling could affect the firing of
the s TOB Commissioner Robert Primus, a Democrat who has
a pending wrong for wrongful termidation case with the hopes
of being reinstated. His dismissal helped the Republicans gain a
two to one majority on the board. There are two
(12:30):
open seats on the STB, including Primus's seat. He was
the only member to oppose the twenty twenty three Canadian
Pacific and Casey Southern merger, so that's actually worth noting,
and the sole Democrat, Karen Hudland's term expires at the
end of this year, and commentary by the US government
(12:51):
officials bolster's optimism that the UPNS merger can be done.
Commerce Secretary Howard Lutnik has said he supports consolidation if
it creates efficiencies. President Donald Trump called it a good deal.
Up is among also the donors to the White House's
ballroom following September's meeting between its CEO and Trump, which
(13:15):
probably can't hurt as well. While the lawyers battle it
out at the STB and the public relation machines on
both sides make their points heard, the operators, whether it's
Union Pacific or Norfolk Southern or its peers, are really
focused on improving margins and their overall earnings outlook. Consensus
expects adjusted EPs to grow in the high single digits.
(13:39):
We're about nine percent in twenty twenty six. CSX looks
like it's going to lead that growth with about fifteen
percent of adjusted earnings growth in twenty twenty six. And
what's driving this is they had a tough twenty twenty five,
they're moving past two major construction projects, and they're ready
to reap the rewards of better fluidity. Canadian Pacific Kansas
(14:04):
City is right behind them with around fourteen percent growth
forecasted on their earnings according to Consensus, and that's really
thanks to new service opportunities on their network and probably
some new business wins which this network will provide it.
You know, we can't talk rail without talking tariffs. The
(14:26):
trade war has unleashed a flood of uncertainty our Canadian peers,
Canadian National and CPKC have the most to lose here.
About thirty two percent of CNS revenue and thirty nine
percent of CPKC revenues is cross border. If the Supreme
Court rules in favor of the Administration's tariff powers, these
railroads are going to have a very stiff headwind to navigate. Also,
(14:51):
the Administration wants to we negotiate the USCMA agreement next year,
and we're definitely going to be watching watching that. The
ever changing US trade policies and falling consumer confidence may
create another challenging demand backdrop for the North American rails
in twenty twenty six. They're trying to augment what the
(15:13):
economy provides with new services and industrial development opportunities. Intermol
volume is contending, though currently with lower diesel prices and
excess trucking capacity, which is driving spot rates low and depressed,
which limits their opportunity there. As we mentioned earlier, a
tighter truckload market would really benefit intermodal here, making intermodal
(15:37):
a lot more compelling. North America volume growth could accelerate
to two zero point one percent in twenty twenty six
from one point four percent this year based on the
median consensus estimate, growth will ultimately be driven by the
Trump administration's trade policies, which have been a headwind for demand,
(15:57):
as well as inflationary tr which again their data is
available on the Blueberg Terminal forecasts US rail traffic will
be zero point seven percent lower in twenty twenty six,
which is a little more twice than the drop expected
this year in one hundred and forty basis points more
barrassed than consensus, CPKC is expected to lead growth up
(16:21):
five percent on broad based gains in potash, Automotive and intermodal.
Intermotive declines in the US may accelerate to one point
five percent in twenty twenty six from point seven this year.
Based on FTR forecast, Consensus is more constructive with the
medium forecast of two point eight percent intermodial growth for
(16:42):
public Class one peers this year. Norfolk Southern is the
only rail that Consensus is modeling for intermodial declines at
point nine percent from increased competition following its announced merger
with Union Pacific. The Trump administration will have airing implications
for intermodial markets. Protectionist policies may limit imports with Clarkson's
(17:03):
forecasting North American portlifts will rise zero point four percent
in twenty twenty six. On the other hand, stricter enforcement
of English language proficiency standards and reduced non domicile commercial
driver licenses could tighten markets, drive uprates, and make intermodal
intermodal more compelling for shippers. Railroads are courting new businesses
(17:24):
and services to spurare growth beyond what the economy provides.
At csx's November twenty twenty four analyst Day Management quantified
it's twenty twenty five to twenty seven merchandise pipeline at
one point two billion, to be fueled by chemicals, followed
by minerals, AG, food and metals. A new project, though,
(17:48):
can take a long time. It can take about one
to two years to come online in another twelve to
eighteen months to become fully operational. CPKC highlighted two hundred
million in new business operatortunity starting up in the fourth
quarter of twenty twenty five. So let's switch gears again.
Let's hit the parcel markets so stronger yields and productivity
(18:08):
gains will help accelerate earnings growth for leading global parcel carriers.
Such as FEDEXUPS and DHL in twenty twenty six. Pricing
should get a boost from search charges, and carriers will
focus on revenue quality as they go after more profitable
customers and end markets. This could include healthcare markets, reverse logistics,
(18:30):
and more of a focus on small to midside customers
versus these large enterprise customers like Amazon, which are mostly
lower margin business. This will mitigate volume headwinds from the
end of the Diminimus exemption on low value shipments. In
the ever changing tariff policies, we expect volume to increase
(18:51):
more or less in line with global GDP, which can
Sensus pegs at around two point nine percent. Parcel carriers
have made strides with lost controls and productivity, which can
help buffer against broader macroeconomic challenges. UPS, for example, has
targeted three point five billion in twenty twenty five cost reductions,
which really equates to about three dollars and fifteen cents
(19:13):
to share. We expect more productivity improvements from all the
carriers in twenty twenty six. When they start reporting their earnings,
they'll probably lay out their expectations and you know, FedEx
is also holding a an analyst date in February of
twenty twenty six, So they'll probably have a lot to
say about, you know, where they think their costs are
(19:35):
going as they continue to restructure parcel carriers. EBIT growth
may rise around ten percent in twenty twenty six, per consensus,
after this year's tepid one point one percent growth. Now
you know, another subcategory in logistics are truck brokers. We
want to spend some time there now, you know. Revenue
growth for leading truck brokers like H Robinson or rx
(20:00):
H JB Hunt. You know, they might rebound in twenty
twenty six following a one point one decline in twenty
twenty five, and earnings recovery may also only be possible
in twenty twenty six, with analysts projecting medium twenty five
percent EPs growth following a twenty one percent deterioration in
(20:22):
twenty twenty five. The trajectory of demand growth will depend
on how various US protectionist policies play out, which good
weigh on brokerage volumes if they stick. Also, margins will
get a boost from the deployment of artificial intelligence and
large language models that have driven significant productivity improvements. With
(20:43):
those brokers that have embraced these emerging technologies. You know, AI.
I'm kind of on the bandwagon here. This is one
of the few technologies or emerging technologies that you know,
come across our desk that you know, we're actually seeing
deployed and actually seeing benefits of, you know, going right
(21:04):
to the bottom line. So it's pretty exciting to see
this to continue. And you know, I think we're in
early innings in terms of you know, the benefits that
AI will have, and we expect the players with the
most compelling technology stack will reduce costs, pass those savings
as shippers and drive market share gains. You know, more
(21:25):
and more of a broker's workflow is becoming automated, allowing
employees to focus on what matters, which is building relationships
as well as providing its customers and carriers with a
higher level of service when things go awry. Finally, let's
head out to see, if you will. Global marine shipping
is facing a challenging twenty twenty six and this is
(21:46):
really being driven by supply growth outpacing demand across the board.
So whether it's we're talking about tankers, dry bookers, or
contanna liners, we're expected to see that transpire this year.
If we focus on the container liner market, you know,
we're expecting declining rates and low single digit vyume growth,
(22:08):
which really isn't painting an encouraging picture for container liners
in their earnings. Supply growth outpacing demand over the coming
years will continue to weigh on rates, fueling more downside
risk to earnings expectations. In our view, some liners might
even struggle to generate positive EBIT this year. Revenue and
(22:29):
earning expectations will likely move lower in our view as
rates continue to struggle to find support. EPs for Bloomberg
Intelligence top container liner peer group is expected to fall
forty three percent in twenty twenty six, following last year's
forty five percent decline, and this is all on six
(22:49):
seven percent lower revenues. Global container supply is on pace
to outpaced demand by around two hundred and seventy basis
points in twenty twenty five, according to Clarkson's, which is
forecasting spreads to widen to around five hundred and twenty
basis points in twenty twenty six, and you know, really
(23:12):
widen even further in twenty twenty seven. You know, the
order book as a percentage of the container liner fleet
sits around thirty three percent, which is well above the
twenty year average of around twenty eight percent, and at
level is really not seen since twenty ten. And this
is all based on Clarkson's data. The inflated order book
has been driven by a combination of decarbonization efforts, fleet redouals,
(23:34):
and demand for larger vessels. The industry doesn't take a
discipline approach to capacity, really never has and this is
really driven the boom and bus cycles that we're kind
of familiar with in the global liner industry, you know,
the industry was also you know, shipping industry in general,
whether it's the liners or bulkers or tankers, have been
(23:56):
hurt by the WHO these attacks on ships operating in
the right see The number of traversing the Suez Canal,
at least as it relates to liners, is down around
eighty percent since December of twenty twenty three. This isn't
as great for the dry bulkers, which are down around
(24:16):
forty eight percent and the tankers are thirty eight percent.
Lower liners have been probably more targeted due to the
high value of their cargo and the fact that much
of the freight was headed to Western nations. Also, tankers
hauling crude from Iran and Russia are more likely to
use the Suez, given Russia support of Iran, which obviously
(24:38):
back to the Houthis. A reopening of the water way
would add significant capacity to an already loose market. Some
liners have started returning to the Suez. They at least
been testing it as the Hoothis have paused their attacks
for as long as the cease fire between Israel and
Hamas holds. We expect any return will be It's low
(25:00):
given that the risks haven't fully dissipated, and the ones
that are returning on the liner side, it's really a
southbound move, so from Europe to Asia and those The
reason for that is those ships tend to have less cargo,
so less value on board and probably less of a
risk for insurers. One small bright spot on the water
(25:23):
is dry bulk. Dry bulk ton miles demand is set
to pick up to around two point one percent as
China's appetite for bulk commodities remains resilient and trade tensions
hopefully cool slightly this year. But even there, the supplied
demand gap is narrowing and it's going to be a
(25:43):
battle for profitability for players like Starbulk and Good Golden Ocean.
So that is something that definitely we need to watch.
So as we wrap up our twenty twenty our twenty
twenty six outlook, you know what's the big picture. It's
finally seems to be on the right path to at
(26:06):
least a better market. But you know there is really
going to be dependent on the pace of how supply
it leaves the market. So you know, the faster the
supply leaves, the better rates will be sooner and better
for earnings. Railroads, I think it's really going to be
about TEPI demand and you know the drama between up
(26:31):
Norfolk Southern those that are for the merger and those
that are against it. So I think it's going to
be a very interesting twenty twenty six as these pr
machines go into full full speed ahead. You know three
pls like the freight brokers are becoming you know, more
tech enabled, and that is really going I think to
(26:54):
drive the market. You know, as you mentioned earlier, I
think it's really all about tech. It's going to be
those It's really going to be between the haves and
have not which could you know hasten the consolidation of
the market, and you know, finally global shipping, we would
consider it. You know, the supply demand dynamics are not encouraging,
(27:16):
so you know, rates could could feel some pressure across
the board. So you know, a lot of uncertainty still.
While twenty twenty five was a year of uncertainty, I
think that common thread will probably continue this year and
it'll be very interesting to see how things play out.
And I also want to thank you for tuning in.
If you liked the episode, please subscribe and leave a review.
(27:40):
We've lined up a number of great guests for twenty
twenty six. We'll be talking to c suite executives, shippers,
and regulators that are navigating these opportunities and challenges ahead.
If you want to dive deeper into any of the
information that we spoke about today, please feel free to
jump on the Bloomberg terminal at big or you can
follow her work on social media. This is Lee Glasgow
(28:03):
signing off. Thanks for talking transports with me.
Hi everyone, this is Lee Claskal and we're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskow, senior Freight transportation logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists around the world. A quick public service announcement
before we dive in. Your support is instrumental to keep
(00:27):
bringing great guests and conversations to you, our listeners, and
we need your support, so please, if you enjoy this podcast,
share it, like it and leave a comment. Also, if
you've got ideas, feedback, or just want to talk transports,
I'm always happy to connect. You can find me on
the Bloomberg terminal, on LinkedIn, or on x at Logistics. Lee.
This is our first episode of twenty twenty six, coming
(00:50):
back from a short hiatus, and I want to take
a moment to wish you all in your family is
a very happy, healthy, and prosperous new year. I look
forward to bringing you more interesting conversations with decision makers
within the freight, transportation and logistics industries. Today, we're going
to do something a little different. I will be your
host and guest, yes you heard that right. We're going
(01:12):
to share with you our twenty twenty six outlook for
the freight markets, which we published in December. For those
that want to take a deeper dive into our outlooks,
they could be found on the Bloomberg terminal at big
And Before we look ahead, it's always good to see
where we came from. We would characterize twenty twenty five
(01:32):
as a year of significant uncertainty as it pertained to
the more protectionist policies of the Trump administration. This was
not the backdrop needed to help get the freight markets
out of aduldrums. The freight markets were also dealing with
other geopolitical risks in the Red Sea Wars raging between
Hamas and Israel and between Russia and Ukraine, and this
(01:56):
backdrop really weighed on freight stocks. You look at the
S and P five hundred, which was up around seventeen
percent in twenty twenty five, they really outperform the freight markets.
The best performing subcategory that we look at was the
bi express peer group, which is really FedEx ups and
Deutsche Post, which was up thirteen percent, still underperformed the
(02:20):
broader markets by foreigner basis points, but was the best performing.
That was followed by our rail peer group, which was
up eight percent. Then finally, the Truckload peer group and
the LTL peer group were down for the year. The
Truckload peer group was down eleven percent in twenty twenty
five and the LTL peer group was down thirteen percent.
(02:41):
You know, we've seen some recent strength since I would
say late November. This is really on the backs of
I guess, more optimism heading into the new year, especially
as it relates to the trucking market. Also, you know,
the economic backdrop has not been really really good. You know,
(03:02):
we have inflationary pressures, you know, just like we always
like to talk about eggs egg CPI. You know, that
has been down from its peaks, but it's still a
high relative to historical values. You Know, you have the
thirty year mortgage which has been trending down since the
beginning of twenty twenty four, but you know, still remains,
(03:23):
you know, above that six percent mark. And then you
have consumer confidence which has been in the dul drums
as well. So you know, these things are just not
really painting a great economic outlook. And when I look
on the Bloomberg terminal at ECFC GO, I can see
consensus expectations for various economic indicators like GDP. So GDP
(03:43):
is expected to remain two percent and twenty twenty five
and twenty twenty six. Industrial production expected to accelerate slightly
to one point four percent growth from one point one
percent growth in twenty twenty five, and you have a
housing market that might increase ever so slightly. So you know,
it's not terrible, but it's certainly not not good either.
(04:05):
We would like to see, you know, GDP expectations accelerate
from the twenty twenty five level to be a little
more constructive on the demand side. So let's start off
looking at the sub segments within the freight transportation markets.
We're going to first start off looking at the truckload market,
and you know, the truckload carriers, you know, they've really
(04:27):
been hit by weak demand and weak price prices. We've
been in a freight recession for more or less four years.
We saw earnings adjusted earnings collapse for our BI truckload
peer group by forty eight percent in twenty twenty three
and another fifty one percent in twenty twenty four. Seeing
(04:48):
a slight increase this year and next year or should
say twenty twenty six, we could see a surge of
thirty nine percent in the median increase in adjusted earnings.
And you know, it's really the question that I think
a lot of people want to know is like, you know,
why is it growing so much? And it's growing so
much a because you know, you're going to have demand growth,
(05:09):
tep it, but demand growth, and you're gonna hopefully have
you know, some rates increasing, and that operational leverage that
these carriers will get really should drive to the bottom line. Also,
you could also get some better use prices for for
for their for their equipment that they're selling in the
secondary market. You know, supply is finally leaving the market
(05:31):
and it's being nudged towards the exit by the federal government.
We're seeing a real crackdown on English language proficiency non
dominancile driver licenses as well. And you know, when you
when you look at the numbers, there are roughly two
hundred thousand non domicile CDL holders out there in the
US and that's about seven percent of the driving pool.
(05:51):
And when you add in stricter ELD standards and the
crackdown on English language proficiency. We could see ten to
fifty teen percent of drivers being impacted and leaving the market.
While we don't necessarily think we're going to reach fifteen
percent of the market leaving overnight, you know, you could
see an acceleration in the exits that we've been seeing
(06:13):
that were driven primarily through bankruptcies. You know. Also, you
know we're not going to see as many drivers entering
the market because you've seen a crackdown on driving schools
with about three thousand training providers removed from the FMCSA
registry for failing to meet federal standards. And this will
reduce the number of drivers entering the market. So again,
(06:35):
that's really going to be good for the supply side,
and this should really drive utilization rates. We have data
from FTR on the terminal and their utilization rate for
the truckload market troughed at around eighty nine percent in
January twenty twenty two, and this is forecasted to hit
around ninety five point one percent in December of twenty
(06:57):
twenty five and then ninety six point two two percent
in twenty twenty six. And this is well above the
twenty year average of ninety one percent, and we're moving
into a seller's market and we haven't seen that in
a really long time. So, you know, we believe that
that the market is near equilibrium and these things that
we're seeing on the supply side should really push rates higher.
(07:21):
While we don't think again rates are going to increase
significantly higher early on in the year, we do think
that all gradual increase and you could see some positive
momentum of building towards the end of the second quarter.
You know, when you're looking at the LTL, the lesson
truckload sector, this is a more interesting sector for us
(07:42):
because at the end of the day, they have better pricing.
And the reason why they have better pricing, it's a
much more consolidated market and that is really driving their decisions.
And if certain businesses do not hit a certain ROI,
they're more than happy to walk away from that business.
You know. For twenty twenty six, Consensus is expecting twenty
(08:03):
two percent EPs growth on four percent revenue growth for
LTL peers that we cover, you know, companies like XPO,
Old Dominion, Saya, TFI, our Best. You know, they these
these carriers have really learned from the late two thousands
that using pricing as a weapon to gain share really
(08:26):
could backfire. And you know, it took a lot of
carriers years to reprice their business to get to those
rois that they really need to reinvest in their businesses.
So we don't think that carriers will be using price
to win share. And that's good because this discipline pricing
will likely offset flat to weak LTL demand in twenty
(08:48):
twenty six and help push revenue and earnings higher. There's
upside to consensus for revenue to increase a medium of
four percent for the peer group. On our kind of
more up pricing outlook, this could deal to d adjusted
EPs growth of around twenty two percent, which can halt
(09:08):
three consecutive years of earning declines. Pricing and productivity gains
are expected to drive slightly better margins, and it will
be the first annual improvement based on consensus estimates since
twenty twenty two. So twenty twenty six really shaping up
to be much better than we've seen it in a
couple of years for the LTL space, and any upside
(09:29):
will actually likely be driven by improved demand or productivity
initiatives at these individual carriers, And you know, it's worth noting.
You know why pricing discipline is so important is that,
you know, the industry is highly leveraged to pricing about
one hundred bases point declined and yield requires about three
hundred basis point increase in tonnage, and carriers will become
(09:51):
more mindful about managing yields and like I said, walking
away from freight that don't meet certain return on investment thresholds.
You know, we expect revenue P one hundredweight excluding fuel
search charges to be up by loads to mid single
digits next year, so it should be I guess I
would say a more constructive backdrop for the LTL market.
(10:13):
You know what's worth voting is that the ISM Manufacturing
index that's been in contraction territory thirty five of the
last thirty seven months, and this is really kind of
a good barometer for future LTL demand. So you know
what that is telling us is that at least over
the next couple of months, a demand when you're looking
(10:36):
at tonnage, should probably remain you know, depressed or down
year over year. Let's switch gears now. You know, we
talked about trucks, we talked about the truckload market. We
talked about the LTL market, you know, I want to
talk a little bit about the the rail market. You know,
North America railroad earnings growth looks poised to pick up
in twenty twenty six, but may fall short of double
(10:58):
digits amid uncertain tied to the Trump Administration's tariffs. Slack
trucking capacity and low diesel prices could also hurt domestic
intermodal results. Railroads will focus on yield initiatives and productivity
to drive margins against the tepid demand backdrop. The proposed
Union Pacific and Norfolk Southern merger will obviously dominate the
(11:21):
industry this year. It faces high regulatory hurdles and we
don't think approval is necessarily guaranteed. The prospects for the
Surface Transportation Board approval have brightened, though, we would say,
but our view remains below consensus. We put up probability
of fifty five to sixty percent that it gets approval.
(11:43):
This is higher than our last probability of forty five percent.
And you know, we believe the regulatory hurdles to prove
the deal will enhance competition. Is in the public interest,
is not a layup for the two carriers. You know,
But like I said, you know, our outlook has improved.
Reports that the Supreme Court may allow President Trump to
remove Rebecca Kelly Slaughter from the FTC despite legal precedents
(12:09):
for independent agencies. The ruling could affect the firing of
the s TOB Commissioner Robert Primus, a Democrat who has
a pending wrong for wrongful termidation case with the hopes
of being reinstated. His dismissal helped the Republicans gain a
two to one majority on the board. There are two
(12:30):
open seats on the STB, including Primus's seat. He was
the only member to oppose the twenty twenty three Canadian
Pacific and Casey Southern merger, so that's actually worth noting,
and the sole Democrat, Karen Hudland's term expires at the
end of this year, and commentary by the US government
(12:51):
officials bolster's optimism that the UPNS merger can be done.
Commerce Secretary Howard Lutnik has said he supports consolidation if
it creates efficiencies. President Donald Trump called it a good deal.
Up is among also the donors to the White House's
ballroom following September's meeting between its CEO and Trump, which
(13:15):
probably can't hurt as well. While the lawyers battle it
out at the STB and the public relation machines on
both sides make their points heard, the operators, whether it's
Union Pacific or Norfolk Southern or its peers, are really
focused on improving margins and their overall earnings outlook. Consensus
expects adjusted EPs to grow in the high single digits.
(13:39):
We're about nine percent in twenty twenty six. CSX looks
like it's going to lead that growth with about fifteen
percent of adjusted earnings growth in twenty twenty six. And
what's driving this is they had a tough twenty twenty five,
they're moving past two major construction projects, and they're ready
to reap the rewards of better fluidity. Canadian Pacific Kansas
(14:04):
City is right behind them with around fourteen percent growth
forecasted on their earnings according to Consensus, and that's really
thanks to new service opportunities on their network and probably
some new business wins which this network will provide it.
You know, we can't talk rail without talking tariffs. The
(14:26):
trade war has unleashed a flood of uncertainty our Canadian peers,
Canadian National and CPKC have the most to lose here.
About thirty two percent of CNS revenue and thirty nine
percent of CPKC revenues is cross border. If the Supreme
Court rules in favor of the Administration's tariff powers, these
railroads are going to have a very stiff headwind to navigate. Also,
(14:51):
the Administration wants to we negotiate the USCMA agreement next year,
and we're definitely going to be watching watching that. The
ever changing US trade policies and falling consumer confidence may
create another challenging demand backdrop for the North American rails
in twenty twenty six. They're trying to augment what the
(15:13):
economy provides with new services and industrial development opportunities. Intermol
volume is contending, though currently with lower diesel prices and
excess trucking capacity, which is driving spot rates low and depressed,
which limits their opportunity there. As we mentioned earlier, a
tighter truckload market would really benefit intermodal here, making intermodal
(15:37):
a lot more compelling. North America volume growth could accelerate
to two zero point one percent in twenty twenty six
from one point four percent this year based on the
median consensus estimate, growth will ultimately be driven by the
Trump administration's trade policies, which have been a headwind for demand,
(15:57):
as well as inflationary tr which again their data is
available on the Blueberg Terminal forecasts US rail traffic will
be zero point seven percent lower in twenty twenty six,
which is a little more twice than the drop expected
this year in one hundred and forty basis points more
barrassed than consensus, CPKC is expected to lead growth up
(16:21):
five percent on broad based gains in potash, Automotive and intermodal.
Intermotive declines in the US may accelerate to one point
five percent in twenty twenty six from point seven this year.
Based on FTR forecast, Consensus is more constructive with the
medium forecast of two point eight percent intermodial growth for
(16:42):
public Class one peers this year. Norfolk Southern is the
only rail that Consensus is modeling for intermodial declines at
point nine percent from increased competition following its announced merger
with Union Pacific. The Trump administration will have airing implications
for intermodial markets. Protectionist policies may limit imports with Clarkson's
(17:03):
forecasting North American portlifts will rise zero point four percent
in twenty twenty six. On the other hand, stricter enforcement
of English language proficiency standards and reduced non domicile commercial
driver licenses could tighten markets, drive uprates, and make intermodal
intermodal more compelling for shippers. Railroads are courting new businesses
(17:24):
and services to spurare growth beyond what the economy provides.
At csx's November twenty twenty four analyst Day Management quantified
it's twenty twenty five to twenty seven merchandise pipeline at
one point two billion, to be fueled by chemicals, followed
by minerals, AG, food and metals. A new project, though,
(17:48):
can take a long time. It can take about one
to two years to come online in another twelve to
eighteen months to become fully operational. CPKC highlighted two hundred
million in new business operatortunity starting up in the fourth
quarter of twenty twenty five. So let's switch gears again.
Let's hit the parcel markets so stronger yields and productivity
(18:08):
gains will help accelerate earnings growth for leading global parcel carriers.
Such as FEDEXUPS and DHL in twenty twenty six. Pricing
should get a boost from search charges, and carriers will
focus on revenue quality as they go after more profitable
customers and end markets. This could include healthcare markets, reverse logistics,
(18:30):
and more of a focus on small to midside customers
versus these large enterprise customers like Amazon, which are mostly
lower margin business. This will mitigate volume headwinds from the
end of the Diminimus exemption on low value shipments. In
the ever changing tariff policies, we expect volume to increase
(18:51):
more or less in line with global GDP, which can
Sensus pegs at around two point nine percent. Parcel carriers
have made strides with lost controls and productivity, which can
help buffer against broader macroeconomic challenges. UPS, for example, has
targeted three point five billion in twenty twenty five cost reductions,
which really equates to about three dollars and fifteen cents
(19:13):
to share. We expect more productivity improvements from all the
carriers in twenty twenty six. When they start reporting their earnings,
they'll probably lay out their expectations and you know, FedEx
is also holding a an analyst date in February of
twenty twenty six, So they'll probably have a lot to
say about, you know, where they think their costs are
(19:35):
going as they continue to restructure parcel carriers. EBIT growth
may rise around ten percent in twenty twenty six, per consensus,
after this year's tepid one point one percent growth. Now
you know, another subcategory in logistics are truck brokers. We
want to spend some time there now, you know. Revenue
growth for leading truck brokers like H Robinson or rx
(20:00):
H JB Hunt. You know, they might rebound in twenty
twenty six following a one point one decline in twenty
twenty five, and earnings recovery may also only be possible
in twenty twenty six, with analysts projecting medium twenty five
percent EPs growth following a twenty one percent deterioration in
(20:22):
twenty twenty five. The trajectory of demand growth will depend
on how various US protectionist policies play out, which good
weigh on brokerage volumes if they stick. Also, margins will
get a boost from the deployment of artificial intelligence and
large language models that have driven significant productivity improvements. With
(20:43):
those brokers that have embraced these emerging technologies. You know, AI.
I'm kind of on the bandwagon here. This is one
of the few technologies or emerging technologies that you know,
come across our desk that you know, we're actually seeing
deployed and actually seeing benefits of, you know, going right
(21:04):
to the bottom line. So it's pretty exciting to see
this to continue. And you know, I think we're in
early innings in terms of you know, the benefits that
AI will have, and we expect the players with the
most compelling technology stack will reduce costs, pass those savings
as shippers and drive market share gains. You know, more
(21:25):
and more of a broker's workflow is becoming automated, allowing
employees to focus on what matters, which is building relationships
as well as providing its customers and carriers with a
higher level of service when things go awry. Finally, let's
head out to see, if you will. Global marine shipping
is facing a challenging twenty twenty six and this is
(21:46):
really being driven by supply growth outpacing demand across the board.
So whether it's we're talking about tankers, dry bookers, or
contanna liners, we're expected to see that transpire this year.
If we focus on the container liner market, you know,
we're expecting declining rates and low single digit vyume growth,
(22:08):
which really isn't painting an encouraging picture for container liners
in their earnings. Supply growth outpacing demand over the coming
years will continue to weigh on rates, fueling more downside
risk to earnings expectations. In our view, some liners might
even struggle to generate positive EBIT this year. Revenue and
(22:29):
earning expectations will likely move lower in our view as
rates continue to struggle to find support. EPs for Bloomberg
Intelligence top container liner peer group is expected to fall
forty three percent in twenty twenty six, following last year's
forty five percent decline, and this is all on six
(22:49):
seven percent lower revenues. Global container supply is on pace
to outpaced demand by around two hundred and seventy basis
points in twenty twenty five, according to Clarkson's, which is
forecasting spreads to widen to around five hundred and twenty
basis points in twenty twenty six, and you know, really
(23:12):
widen even further in twenty twenty seven. You know, the
order book as a percentage of the container liner fleet
sits around thirty three percent, which is well above the
twenty year average of around twenty eight percent, and at
level is really not seen since twenty ten. And this
is all based on Clarkson's data. The inflated order book
has been driven by a combination of decarbonization efforts, fleet redouals,
(23:34):
and demand for larger vessels. The industry doesn't take a
discipline approach to capacity, really never has and this is
really driven the boom and bus cycles that we're kind
of familiar with in the global liner industry, you know,
the industry was also you know, shipping industry in general,
whether it's the liners or bulkers or tankers, have been
(23:56):
hurt by the WHO these attacks on ships operating in
the right see The number of traversing the Suez Canal,
at least as it relates to liners, is down around
eighty percent since December of twenty twenty three. This isn't
as great for the dry bulkers, which are down around
(24:16):
forty eight percent and the tankers are thirty eight percent.
Lower liners have been probably more targeted due to the
high value of their cargo and the fact that much
of the freight was headed to Western nations. Also, tankers
hauling crude from Iran and Russia are more likely to
use the Suez, given Russia support of Iran, which obviously
(24:38):
back to the Houthis. A reopening of the water way
would add significant capacity to an already loose market. Some
liners have started returning to the Suez. They at least
been testing it as the Hoothis have paused their attacks
for as long as the cease fire between Israel and
Hamas holds. We expect any return will be It's low
(25:00):
given that the risks haven't fully dissipated, and the ones
that are returning on the liner side, it's really a
southbound move, so from Europe to Asia and those The
reason for that is those ships tend to have less cargo,
so less value on board and probably less of a
risk for insurers. One small bright spot on the water
(25:23):
is dry bulk. Dry bulk ton miles demand is set
to pick up to around two point one percent as
China's appetite for bulk commodities remains resilient and trade tensions
hopefully cool slightly this year. But even there, the supplied
demand gap is narrowing and it's going to be a
(25:43):
battle for profitability for players like Starbulk and Good Golden Ocean.
So that is something that definitely we need to watch.
So as we wrap up our twenty twenty our twenty
twenty six outlook, you know what's the big picture. It's
finally seems to be on the right path to at
(26:06):
least a better market. But you know there is really
going to be dependent on the pace of how supply
it leaves the market. So you know, the faster the
supply leaves, the better rates will be sooner and better
for earnings. Railroads, I think it's really going to be
about TEPI demand and you know the drama between up
(26:31):
Norfolk Southern those that are for the merger and those
that are against it. So I think it's going to
be a very interesting twenty twenty six as these pr
machines go into full full speed ahead. You know three
pls like the freight brokers are becoming you know, more
tech enabled, and that is really going I think to
(26:54):
drive the market. You know, as you mentioned earlier, I
think it's really all about tech. It's going to be
those It's really going to be between the haves and
have not which could you know hasten the consolidation of
the market, and you know, finally global shipping, we would
consider it. You know, the supply demand dynamics are not encouraging,
(27:16):
so you know, rates could could feel some pressure across
the board. So you know, a lot of uncertainty still.
While twenty twenty five was a year of uncertainty, I
think that common thread will probably continue this year and
it'll be very interesting to see how things play out.
And I also want to thank you for tuning in.
If you liked the episode, please subscribe and leave a review.
(27:40):
We've lined up a number of great guests for twenty
twenty six. We'll be talking to c suite executives, shippers,
and regulators that are navigating these opportunities and challenges ahead.
If you want to dive deeper into any of the
information that we spoke about today, please feel free to
jump on the Bloomberg terminal at big or you can
follow her work on social media. This is Lee Glasgow
(28:03):
signing off. Thanks for talking transports with me.
Host
Lee Klaskow
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