The key to recovery: supply shortages and demand awakening

Recent developments in the freight industry have shown significant market signal shifts. After more than three years of recession, the imbalance between supply and demand has finally improved. Research analysis from Susquehanna Financial Group indicates that the market has begun to respond to this positive change.

Regulatory Crackdown Sparks Supply Revolution

Industry insiders are generally optimistic about the outlook for the freight market, with one key driver being increasingly strict regulatory measures. New driver management standards—including language proficiency requirements, CDL holder restrictions, enhanced ELD enforcement, and higher driver training standards—are effectively compressing available capacity.

Tightening rules around fuel storage permits and related regulations further increase operational costs and entry barriers. While these policy changes add short-term burdens for operators, from a market mechanism perspective, they help rationalize the industry structure.

Cold Reflection Behind Short-Term Prosperity

Since the week before Thanksgiving, the stocks of three major freight companies—Knight-Swift Transportation (NYSE: KNX), Schneider National (NYSE: SNDR), and Werner Enterprises (NASDAQ: WERN)—have averaged nearly 40% gains. In contrast, the S&P 500 index rose only 6% during the same period. This clear excess return reflects the capital market’s re-pricing of recovery expectations for the freight industry.

Data from the VOTRI.USA rejection rate index and the US National Truckload Index (NTIL.USA) show that seasonal peaks combined with harsh winter weather conditions have indeed intensified market tension. But whether this can evolve into sustainable, long-term structural improvement remains to be seen.

Four Layers of Supply Improvement Logic

Latest data from the Logistics Managers’ Index indicate that capacity decline has reached its highest level in four years, with inventories hitting record lows. Additionally, the scale of eight types of truck fleets is expected to continue shrinking this year and into next year—new orders cannot keep pace with fleet renewal—making supply-side constraints increasingly apparent.

However, the true determinant of industry profit levels is demand performance. The growth cycles from 2017 to 2018 showed that surging order volumes drove higher rates, profit margins, and profitability. While current policies have created a favorable supply foundation, without strong demand support, the industry will still struggle to achieve a genuine profit recovery.

J.B. Hunt Upgraded and Industry Outlook Divergence

Susquehanna has upgraded J.B. Hunt Transport Services (NASDAQ: JBHT) to “Positive,” aligning with its existing rating for Hub Group (NASDAQ: HUBG). The reason is that the anticipated merger between Norfolk Southern (NYSE: NSC) and Union Pacific (NYSE: UNP) is expected to improve rail transportation quality, thereby creating incremental opportunities for intermodal operators.

If the spot freight market can sustain recent gains, the motivation for companies to shift toward intermodal modes will significantly increase. This is a tangible positive for operators whose main business is multimodal transportation.

Cost Control and Selective Optimism

J.B. Hunt is currently implementing a $100 million cost optimization plan with more aggressive internal targets. Analysts have raised the company’s 2026 earnings per share forecast by 1%, making it the only freight company to surpass market consensus expectations (by 2%).

In contrast, Susquehanna has downgraded earnings forecasts for other freight companies by 9% to 20%, below market expectations by 13% to 27%. There are also slight adjustments to Q4 2025 forecasts. Most freight companies expect contract rates to grow in the low single-digit percentage range in 2026.

Cautiously Optimistic Market Outlook

Analysts note that although forecasts for 2026 have been lowered, this reflects a reality—the freight demand has not rebounded as quickly as expected at the start of the new year. Attitudes toward the first half of 2026 remain cautious, and valuation forecasts have been adjusted accordingly.

Despite macro uncertainties such as tariffs, geopolitical tensions, employment, and inflation, positive signals have indeed emerged in the market. The supply-demand balance in the freight industry is undergoing a noticeable shift, empowering operators with greater pricing power. The most significant market turning point since 2020 has already appeared, though vigilance is still needed regarding the pace of change for the most impacted companies.

J.B. Hunt plans to release its Q4 earnings after the market close on January 15.