Morgan Stanley 2025 Transportation Outlook: ‘Sugar high’ or sustained upswing?
On Wednesday, Morgan Stanley released its 2025 Transportation Outlook, which describes the next year as likely a tale of two halves, one with a powerful restocking-driven upcycle followed by the fears of a downcycle beginning in 2026. For the upcycle, there are many unanswered questions, including how long it will last. Historically there was an 18-month restocking cycle in 2018 and 2021, but tariff implementation runs the risk of cutting it short.
Ravi Shanker, managing director at Morgan Stanley, wrote, “After a prolonged downcycle that began in February 2022 the upcycle finally showed up in 2Q24 though it was too shy to really make a difference to numbers.” Part of the Q4 subdued upturn is believed to be related to waiting for the election to pass. With the incoming second Trump administration, Shanker said, “We believe tariff, policy, and geopolitical uncertainty is likely to drive a huge pull-forward of the restocking cycle in 2025, similar to what we saw in the 2018 tariff cycle and the 2021 COVID cycle.” He bases this on recent Morgan Stanley surveys conducted immediately after the U.S. election. Shippers, carriers and brokers believe the election was a restocking catalyst.
Shanker notes that for shippers, there remains a high level of concern and confusion over next steps, based on anecdotal conversations. “In our view, the more shippers choose to restock ahead of tariff risk, the more shippers on the sidelines will be pulled to follow, for fear of missing out.” He adds this gives the potential to drive a record upcycle in 2025, the fourth upcycle in a row since 2014. On the truckload capacity front, supply side challenges were also noted with Clearinghouse II implementation, hard-line immigration policy, East Coast port disruptions, impacts of the AB5 independent contractor law, higher insurance costs and the potential for early purchases of tractors prior to implementation of Environmental Protection Agency regulations.
Shanker adds that while the near-term outlook for truckload demand is positive due to restocking actions and tariff fears, there is concern that the next downcycle could be more negative, as the “sugar high” caused by the rapid increase in demand from restocking gives way to an inventory hangover. For shippers and carriers, the duration and impact of the next upcycle will depend on tariffs, their potential implementation and their potential implications.
Cass Index for November: ‘Downturn nearing an end?’
On Thursday freight audit and payment provider Cass Information Systems released its November Cass Freight Index, which saw improvements across shipments, expenditures and freight rates. The shipments component rose 0.5% m/m in November, breaking a streak of decline over the previous two months. Compared to this time last year, shipments are 0.7% lower, the narrowest y/y decline in the past 21 months. The report notes, “Ongoing economic growth and slowing private fleet capacity additions are helping to narrow the y/y declines, but the normal seasonal pattern would have the index down about 3% y/y in December.”
The Cass Expenditures Index also saw a slight increase of 0.9% m/y in November, with yearly declines moderating from negative 5.9% y/y in October to negative 3.8% in November. The report adds, “With shipments up 0.5% m/m, we infer the 0.9% increase in expenditures included rates up 0.4% m/m in November in the third straight price increase.”
Private fleet capacity remains an ongoing development to watch, with any indications of moderating to slowing private fleet growth being a potential tailwind in the for-hire truckload space. The report notes, “Private fleets continue to show a surprising willingness to add capacity despite wider than normal cost disadvantages, which makes more sense in the context of significant equipment cost increases ahead in 2027. Although private fleets may continue to limit demand in the for-hire market, for-hire activity will likely benefit from slowing private fleet growth and temporary pre-tariff shipping in 1H’25.”
SONAR spotlight: Dry van spot rally parties like it’s February 2023
Summary: A peak season surge in dry van spot rates over the past week has the SONAR National Truckload Index 7 Day Average at its highest level since Feb. 8, 2023. The NTI surged 10 cents per mile all in week over week from $2.39 on Dec. 2 to $2.49. Spot rates are now 18 cents per mile or 7.8% higher than this time last year, when the NTI was at $2.31.
Part of the rally stems from there being fewer carrier trucking operating authorities. According to the SONAR Carrier Details Total Trucking Authorities, there were 14,444 fewer trucking authorities as of Friday, when 344,541 total trucking operating authorities were reported. This is 4% lower than 358,985 authorities reported on Dec. 15, 2023, the closest record for a y/y comparison.
Total truckload operating authorities compared to spot market rates is not an apples-to-apples comparison. But fewer total operating authorities paired with higher spot market rates suggests the truckload for-hire space is improving through the exit of truckload capacity.
In the contract space, dry van outbound tender rejection rates remained relatively flat over the past week, falling 1 basis point from 5.4% on Dec. 2 to 5.39%. VOTRI is up 39 bps m/m from 5% on Nov. 10. Similar to dry van spot rates, dry van outbound tender rejection rates are notably higher compared to this time last year by 220 bps. VOTRI at that time was at 3.19%.
The Routing Guide: Links from around the web
Fleetworthy: Nuclear Verdicts and Compliance Top Fleet Management Concerns (Truckinginfo)
First-half 2025 dry van truckload outlook: Improving conditions ahead (Supply Chain Management Review)
Data reveals a rising trend in fatal accidents involving trucks (Fleet Owner)
2 lawyers, 2 law firms indicted in burgeoning Louisiana staged accident case (FreightWaves)
Highway to health: Pay, lack of sleep and home time are top factors in driver mental health (Commercial Carrier Journal)
State of Freight for December: Freight economy due for ‘directional’ change (FreightWaves)
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