The signs of a freight recovery that appeared early this year are gone, replaced by a tough market where recovery will have to come from a supply-side correction, American Trucking Associations’ Chief Economist Bob Costello said at ATA’s 2025 Management Conference & Exhibition in San Diego.
Costello delivered a blunt and sobering economic warning: new tariffs, persistent stagflation, and a slowing labor market have created “absolutely unsustainable” conditions for many carriers, and the only way out, at least near-term, is to erase capacity from the highway.
“It’s not easy to talk about because it’s people’s livelihoods, but it’s a necessary evil,” Costello said, noting that freight demand is unlikely to improve anytime soon. “This has got to be a supply-driven change in the market.”
The current 18% effective tariff rate, nearly six times higher than it was during the first Trump administration, is a level not seen since the 1930s. Costello warned that the industry is only in the “bottom of the second or top of the third inning” of feeling the impact. “Any benefits of putting tariffs on foreign goods… are years in the future, but the cost hits much quicker,” he said.
Tariffs will impact inflation and could go up to 4% year-over-year, Costello said, before slowing. But prices will rise and stay high unless the tariffs are reduced or eliminated, he added. Overall, prices are up more than 26% since 2020.
A bright spot, Costello said, is that private fleet growth has finally ended and is reversing. “Private fleets grew just after the pandemic. So, as we were in the pandemic craziness and freight was going crazy, there were a lot of frustrated shippers,” he said. “Some of them had fleets and they decided to grow that privately. It was a knee-jerk reaction that I think they sort of second-guessed or regretted. They are contracting again, and I think that will put more freight into the for-hire market.”
PSR Analysis. In the medium and heavy truck segment, reduced truck capacity and higher freight demand in the market will be the principal drivers for an increase in new truck sales. Reducing truck capacity to better align with the current freight environment will be the first step of the process followed by increased freight demand. This will ultimately drive an increase in truck sales.
A rebalancing of the market is likely to begin within the next six to nine months. Moving forward, the big question is not if but when and how quickly the freight market rebounds. Barring an economic downturn or recession, the most likely outcome will be a gradual increase in freight demand beginning late next year. This would allow OEMs and supply chains to gradually increase production capacity to meet improved demand. But what if, for instance, nine months from now the overall state of the market improves significantly and freight demand rises more quickly than anticipated. Will the OEMs and supply chains be able to react to a sharp increase in truck demand?
Meaningful interest rate cuts, a significant reduction in existing tariffs and a stable level of inflation could drive an increase in both consumer and business spending. This, along with the need to replace aging fleets that were last upgraded during the 2022-2024 buying cycle, could lead to a sharp increase in demand for new trucks, particularly in the class 8 segment. In 2022-2024, there was extremely strong truck demand caused by the Covid shutdown and very strong consumer demand.
While nobody is certain how this will unfold, it is very important for the industry to pay close attention to the freight market and economy in general so as not to get caught off guard. PSR
Chris Fisher is Senior Commercial Vehicle Analyst at Power Systems Research
