Morgan Stanley's 2026 Trucking Forecast: Bold Call or Overconfident Bet?
A Critical Analysis of Wall Street's Supply-Side Recovery Thesis
Morgan Stanley just dropped what might be the most consequential trucking forecast of the season: a supply-side “spark” will ignite the long-awaited freight recovery in 2026, potentially driving contract rates up mid-to-high single digits—or even low double digits in a bull case scenario. It’s a bold call that has carriers salivating and shippers scrambling to lock in contracts before the market turns.
But here’s the question every freight professional should be asking: Is Morgan Stanley right, or are they underestimating how broken this market really is?
After three brutal years of margin compression, unprecedented carrier bankruptcies, and persistently weak demand, the industry desperately wants to believe the cavalry is coming. Morgan Stanley analyst Ravi Shanker is betting that new driver regulations—English Language Proficiency (ELP) enforcement and the crackdown on non-domiciled CDLs—will remove over 5% of industry capacity and create the supply shock needed to finally push rates higher.
What Morgan Stanley Got Right: The Supply Squeeze Is Real
Credit where it’s due: The capacity constraint thesis has legs.
The FMCSA’s emergency interim rule on non-domiciled CDLs, implemented September 29, 2025, could disqualify an estimated 97% of the 200,000 non-domiciled CDL holders currently operating—representing roughly 5% of total CDL drivers. California alone canceled 17,000 non-domiciled CDLs following federal audits. English proficiency enforcement has already placed over 7,000 truckers out of service in 2025, up dramatically from 1,500 earlier in the year.
These aren’t theoretical constraints—they’re happening right now. Carriers are losing drivers mid-operation. The regulatory vise is tightening exactly as Morgan Stanley predicted.
The historical pattern also checks out. Morgan Stanley correctly identifies that the past three upcycles (2014’s polar vortex, 2018’s ELD mandate, 2020’s pandemic/clearinghouse) were all triggered by supply shocks that preceded demand surges. The pattern recognition is sound: supply constraints create the spark, demand provides the fuel.
And the carrier exodus continues to accelerate. Industry data shows carrier failures rising faster in 2025 than any prior year of the downturn, with an estimated 5,000 to 8,000 trucking companies exiting the market this year alone. Class 8 tractor builds fell 32% from H1 to H2 2025, dropping below replacement levels. The capacity bleed is undeniable.
The Critical Flaw: Demand Isn’t Coming to Save Anyone
Here’s where Morgan Stanley’s forecast stumbles: they’re counting on a spark without sufficient oxygen to sustain the fire.
Shanker’s base case explicitly states: “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”. He projects only normal seasonal fluctuations after an 18-month period with no cycle, noting that 2025 was “particularly bad” due to tariff-driven inventory disruptions.
Translation: They’re betting on a rate recovery without a freight recovery. That’s not a recovery—that’s just a less-bad recession.
The demand signals are flashing warning signs everywhere you look:
Inventory destocking is complete—and won’t reverse. Morgan Stanley’s own shipper survey shows only 8% plan to build inventories for full-year 2026, despite 23% planning Q3 increases. S&P Global reports that firms have completed their tariff-driven front-loading and are now “focusing on price and cost negotiation” rather than volume growth. The National Retail Federation projects 2025 U.S. imports at 24.7 million TEUs, down 3.4% year-over-year, with monthly volumes expected to drop below 2 million TEUs through Q4 2025 and into early 2026—the lowest levels since 2020.
Import volumes are collapsing, not recovering. Ocean container rates on North Asia to U.S. routes are now well below December 2023 levels, and market intelligence forecasts call for further declines in container shipping volumes over the next 12 months. Retailers are delaying orders and scaling back shipments amid tariff uncertainty and slowing consumer demand.
Consumer spending is weakening. Holiday spending is soft due to rising unemployment and tighter budgets, leading to flatter peak demand and cautious inventory planning. The NRF expects holiday spending to contract in real terms.
FTR’s Avery Vise put it bluntly: “Our current forecast has both this year contract rates being below 2% [and] growth next year being below 2%. So all the way through 2026, 2% is essentially worthless because you’ve got inflation to deal with”. He called it a “marginless recovery” and admitted the paradox: “If we have that tepid of a rate growth, there is no way we’re going to keep the capacity levels in the range that we have them now. We will lose a lot of carriers”.
The Probability Assessment: 40% Right, 60% Wrong
Let me break down the probability that Morgan Stanley’s forecast plays out as predicted:
Scenarios where they’re RIGHT (40% probability):
The regulatory enforcement accelerates beyond expectations – If DOT Secretary Duffy’s audits expand to more states and ELP enforcement tightens further, capacity could contract faster than anticipated, creating genuine pricing power even in weak demand. Probability: 15%
Tariff policies stabilize and restocking materializes – If the new administration provides clarity on trade policy by Q2 2026, shippers may rebuild safety stocks, creating a demand pulse that meets the supply constraint. Probability: 15%
Carrier discipline holds through bid season – If enough carriers refuse to accept below-cost rates and capacity exits continue, the survivors could successfully push through mid-single-digit increases. Probability: 10%
Scenarios where they’re WRONG (60% probability):
Demand stays dead longer than capacity bleeds – The most likely scenario. Capacity continues to exit, but freight volumes remain depressed through most of 2026, creating a “marginless recovery” where rates tick up 1-3% but remain below inflation and insufficient to restore carrier profitability. Probability: 35%
Legal challenges delay or weaken regulatory enforcement – A D.C. court already issued a temporary stay blocking the non-domiciled CDL rule in November 2025. If legal challenges succeed or FMCSA softens enforcement, the capacity constraint evaporates. Probability: 15%
Recession accelerates in 2026 – If tariff uncertainty triggers broader economic slowdown, freight demand could actually decline year-over-year, overwhelming any supply-side tightening. Probability: 10%
Bottom line: Morgan Stanley is directionally correct about supply constraints but overly optimistic about timing and magnitude. The real rate recovery likely doesn’t arrive until late 2026 or 2027, and it won’t be the robust upcycle they’re implying.
What Morgan Stanley Missed: The Enforcement Wild Card
The biggest variable Morgan Stanley underweights is implementation uncertainty around the regulatory crackdown.
Yes, the non-domiciled CDL rule took immediate effect, but enforcement is chaotic. California suspended issuance altogether; other states are still processing renewals under the old rules while conducting audits. The D.C. court stay created further confusion. Some carriers are simply shifting drivers to different states or finding workarounds.
ELP enforcement is equally inconsistent. While out-of-service violations jumped from 1,500 to 7,000+ in 2025, that’s still a tiny fraction of the potential impact if enforcement were universal. Immigration and Customs Enforcement activity could amplify the driver shortage—or it could ease if political winds shift.
The regulatory hammer is real, but the swing path is unpredictable. Morgan Stanley treats this as a foregone conclusion when it’s actually the highest-variance input in their model.
What Morgan Stanley Got Wrong: The Contract Rate Lag
Here’s the other critical miss: spot rates respond to supply-demand imbalances immediately; contract rates lag by 6-12 months.
Even if capacity tightens exactly as Morgan Stanley predicts, the bid season dynamics for 2026 contracts (negotiated Q4 2025/Q1 2026) won’t reflect those constraints because they’re just beginning to materialize. Shippers will look at current spot rates—which just spiked 8% post-Thanksgiving but could easily revert in December—and resist aggressive contract increases.
FTR projects contract rate growth below 2% through 2026, only seeing “significant improvement” in 2027. ACT Research forecasts meaningful freight and rate recovery won’t arrive until the second half of 2026 at earliest. C.H. Robinson, Arrive Logistics, and other 3PLs are issuing similarly cautious guidance.
The contract market moves slower than Morgan Stanley’s timeline suggests. Their mid-single-digit base case might materialize—but in 2027, not 2026.
The Real Story: A Slow Grind, Not a Spark
The freight market isn’t heading for a dramatic 2026 recovery. What’s actually happening is a slow, painful rebalancing that will take 18-24 months to complete:
Q4 2025: Spot rates show seasonal volatility (already happening—8% spike post-Thanksgiving), but contract negotiations remain anchored to depressed 2025 baselines.
Q1-Q2 2026: Capacity exits accelerate as more carriers fail or downsize. Regulatory enforcement tightens. Spot rates firm modestly but remain volatile.
Q3-Q4 2026: If demand stabilizes (big “if”), the cumulative capacity reduction finally creates sustained rate pressure. Contract rates for 2027 begin reflecting tighter fundamentals.
2027: The actual recovery year, assuming no recession.
This isn’t the “supply-side spark” Morgan Stanley is selling. It’s a slog.
What FreightFA Clients Should Do
For Shippers:
Don’t panic-buy capacity in Q1 2026. Morgan Stanley’s upgrade to “Attractive” will create FOMO among shippers worried about a rate spike. Resist. Lock in your core lanes at current pricing, but don’t overbuy based on fear.
Diversify your carrier base strategically. Small carriers are failing at double-digit rates. Vet financial stability. Build relationships with mid-sized regionals that survived the downturn—they’re the sweet spot.
Plan for 3-5% contract increases, not 10%+. Morgan Stanley’s bull case requires perfect conditions. Budget conservatively.
For Carriers:
The worst isn’t over yet. If you’re hanging on for the 2026 recovery, prepare for disappointment. Q1-Q2 2026 will likely see continued margin pressure.
Focus on operational efficiency, not growth. The survivors will be those who control costs, optimize utilization, and maintain pricing discipline—not those chasing volume.
Don’t assume regulatory enforcement saves you. Capacity constraints help, but they won’t compensate for weak demand. Run your business like freight stays soft through mid-2026.
The Verdict
Morgan Stanley’s forecast is 40% right and 60% wrong—but the 40% they got right matters a lot.
Supply-side constraints are real and accelerating. The regulatory crackdown on non-domiciled CDLs and ELP enforcement will remove meaningful capacity. Carrier exits are running at record levels. These forces will eventually tighten the market and push rates higher.
But the timing is off, the magnitude is overstated, and the demand assumptions are too optimistic. The “spark” Morgan Stanley sees in 2026 is more likely a slow-burning ember that doesn’t ignite until 2027.
The freight market isn’t healing—it’s just bleeding slower. That’s progress, but it’s not a recovery.
For FreightFA’s clients, the playbook is clear: Stay disciplined. Plan conservatively. Don’t let Wall Street’s optimism drive your freight strategy. The market will eventually turn, but it won’t be the dramatic inflection Morgan Stanley is predicting.
The real question isn’t whether supply constraints will tighten capacity—they will. The question is whether demand will show up to meet them. And on that count, Morgan Stanley is hoping for a catalyst they freely admit doesn’t exist.
That’s not a forecast. That’s a prayer.