Freight Economy Status: Supply Tightness and Weak Demand Coexist — Interpretation by Breakthrough's Chief Economist

Introduction

In mid-2026, the global freight market is undergoing a structural adjustment driven by supply-side factors. Breakthrough Chief Economist Matt Muenster, in an interview with *Logistics Management*, pointed out that the core contradiction of the current freight economy lies in "supply challenges"—whether for transportation services themselves or the energy that powers them, both face tight supply conditions. Meanwhile, on the demand side, aside from a few niche sectors, overall growth is weak, causing freight rate fluctuations to be driven more by capacity contraction than by cargo volume expansion.

Key Developments

Supply Side: Driver Shortages and Regulatory Tightening Muenster stated that the current market "does not have enough factors driving price changes," and apart from the flatbed sector, most market segments lack sustained demand growth. Instead, supply-side tightening is taking effect: declining driver availability and changes in the regulatory environment (e.g., stricter safety compliance) have led to some capacity exiting the market. The energy market is also facing supply constraints; although recent crude oil prices have fallen, transit volumes through the Strait of Hormuz have never recovered to pre-crisis levels, and the recent escalation of tensions further compounds uncertainty.

Demand Side: Growing Divergence Demand across industries shows clear divergence: consumer-oriented sectors such as paper, packaging, and retail saw a moderate recovery in the summer, but overall they remain near "zero growth." Among durable goods, transport activity for materials like steel related to AI data center construction is active, causing flatbed freight rates to surge. However, home appliances and housing-related products (e.g., large appliances) continue to suffer due to the sluggish real estate market. Muenster emphasized that the weakness in the housing market is structural—high home prices and potential interest rate hikes will make it difficult for first-time homebuyers to drive a market recovery.

Peak Season and Tariff Impacts The 2026 peak season has shifted significantly earlier, driven primarily by the impending expiration of U.S. Section 122 tariffs (July 24). According to the National Retail Federation's Global Port Tracker, container import volumes in July are expected to reach 2.5 million TEUs, a high level. Additionally, the USMCA has been changed to an annual review mechanism, which will not alter the nearshoring trend to Mexico in the short term.

Supply Chain Impacts

Widespread Increases in Transportation Costs Costs for labor, equipment, energy, and insurance continue to rise, leading carriers (trucking, rail) to pass on pressure through rate increases. Shippers (manufacturers, food and beverage companies, etc.) face dual increases in freight rates and energy costs, with the magnitude of changes exceeding most forecasts.

Intermodal Transport: Short-Term Gains but Long-Term Uncertainty Rising energy prices have increased the cost of long-haul trucking, pushing more cargo toward rail intermodal transport. Muenster noted that short-distance rail freight in the eastern region has grown significantly, but this trend is driven more by energy price shocks than by long-term planning. If energy prices fall, rail's competitiveness may weaken.

Regional Impacts### US-Mexico Corridor Continues Expansion Despite the annual review of USMCA, Mexico's appeal as a nearshoring destination remains strong: lower labor costs, relative geopolitical stability, and higher risks in Asia and the Middle East. Carriers (such as IMC and Class I railroads) are increasing investment in cross-border capacity between the U.S. and Mexico, and freight volumes on this corridor are expected to continue growing.

China and Asia: Tariff Risks Driving Advance Stockpiling Primarily driven by U.S. tariff uncertainty, the peak import season for Asia-North America routes has shifted earlier, which is expected to pressure freight rates in the following months.

Industry Perspectives

Cautious Optimism on the UP-NS Merger Regarding the proposed merger between Union Pacific and Norfolk Southern, Muenster holds a reserved view. He believes that while the merger claims to shift more freight from road to rail, actual results depend on infrastructure bypassing congested hubs in major cities, which could take considerable time. Nevertheless, shippers' environmental demands for intermodal transport remain strong; even as the policy environment changes, companies continue to uphold emission reduction targets.

Optimistic Signals from Manufacturing PMI Despite weak transportation data, the ISM Manufacturing PMI has remained in expansion territory this year. Muenster believes the optimism mainly stems from growth in the technology (especially data center) sector, rather than an overall manufacturing recovery. Rising truck and trailer orders, and Daimler's plan to expand production capacity, indicate turning points in certain areas, but sustainability remains to be seen.

Future Outlook

Second Half of 2026: No Significant Improvement Muenster expects no notable market changes in the latter half of the year. Inflationary pressures driven by energy and tariffs, along with rising long-term costs such as insurance, may force the Federal Reserve to shift policy direction—even from rate cuts to rate hikes—further suppressing freight demand related to real estate.

Long-Term Trends: Nearshoring and Structural Cost Increases The boom in the US-Mexico corridor will continue, but border congestion and infrastructure bottlenecks need attention. At the same time, green supply chain goals will remain resilient through policy cycles, as companies improve efficiency to lower costs. AI and data center construction emerge as new demand pillars, but they are insufficient to fill the gap left by declining residential construction.

Conclusion

The freight market in 2026 is in a transition period characterized by "supply dominance and demand divergence." In the short term, high costs and low elasticity coexist, requiring shippers to use intermodal transport more flexibly and optimize inventory strategies; in the long term, they must adapt to new trade flows driven by nearshoring and technology (e.g., AI infrastructure). Policy uncertainties (tariffs, interest rates, environmental regulations) will continue to be core variables affecting investment and operations.

*Note: This article is based on an interview with Matt Muenster, Chief Economist at Breakthrough, by *Logistics Management* on July 15, 2026. Some data are derived from publicly cited sources of the interviewee.*