Transportation Exchange presented by Rush Truck Centres of Canada

What To Expect In 2026 - Tariffs, EPA 2027 And More

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James Menzies, Editor of Today's Trucking and TruckNews.com, returns to review the transportation industry market conditions through the lens of trailer demand, freight rates, and equipment purchasing hesitation. From tariffs and emissions uncertainty to fleets extending trade cycles, James outlines what’s stalling recovery and why the second half of 2026 could signal a turning point. Tune in now.

Jason Cuddy:

Hello and welcome to another episode of the Transportation Exchange Podcast presented by Rush Truck Centres of Canada. I'm your host, Jason Cuddy, and joining us again today is Mr. James Menzies, editor from Truck News and today's Trucking. Thanks for joining us again.

James Menzies:

Always fun to be here, especially after we predicted everything that was going to happen exactly right down to the point.

Jason Cuddy:

Exactly. So we're going to kind of review some of that. It is that time of year already for the year-end review. We did one in May, kind of mid-year, so we'll touch base on that. But as as usual, let's kind of dig through it and we'll start with the market indicator, which is trailers.

James Menzies:

Yeah, trailers is said to be the leading indicator when it comes to equipment demand. And we're not seeing any right now. We're not seeing that demand. There's a lot of reasons for that. There's the tariffs which add a lot of, you know, there's a lot of aluminum and steel that goes into a trailer. And then you just have that soft rate demand that hasn't picked up. I mean, everyone's been waiting for that to happen. Um, not long ago, I was down at the American Trucking Association's management conference and exhibition, which is a good place to go to sort of get the pulse of the fleets and the OEMs and what they're thinking about. And no one was overly optimistic that they're going to see trucking conditions improve over the next six months or so. If there's a recovery, it's not going to be based on freight demand. It's more likely to be based on capacity leaving the industry. But everyone's wondering what's taking so long and such a hard market for that capacity to leave.

Jason Cuddy:

Yeah, that's a good point. We're seeing that you're starting to see obvious news, you know, more so in the US, a little bit in Canada, um, you know, about businesses that are kind of not making it through. And to your point, that, you know, will help bring them rates up as the capacity leaves the market, which then may in start spurring, you know, some purchasing of new equipment, assuming that the rates can then support the capital cost of the equipment for sure.

James Menzies:

P Right. And it it's much more uh palatable financially to start adding trailers before you add class eight trucks. Right. Uh especially if you're uncertain because you know it's a it's a lower cost. Yeah and both are needed, but um trailers are something that you can pick up for a lot less money than a new class eight these days.

Jason Cuddy:

l That's true. And they're not you know tied to any emission standards and stuff that are you know potentially coming down that way. And I guess you know, tied to that you know with the trailers, obviously the class eight and medium duty, what do you what are you seeing and hearing about the those two lines?

James Menzies:

Uh for class eight and medium duty, it's much the same. There's just so much, I think you said the word uncertainty and there's so much uncertainty that's keeping fleets sitting on their hands. And there's multiple reasons for it. There's emissions regulations, what's gonna happen? This was supposed to be a great year for you to be selling the trucks. 100%. Because with EPA 27 on the horizon, everyone was supposed to be buying trucks before those prices went up. Correct. Didn't happen. Now we don't even know if it'll happen. It probably will, but what will it look like? Will it be changed? Will it be delayed? We don't know. So that pre-buy never happened, and fleets continue to wait for answers around emissions. At the same time, you've got what will the tariffs cost? Those rules are ever changing. Now we know that they're going to be applied to full vehicles. Initially it was just apart. So what's that going to look like? And what kind of an impact will that have on price? And I understand like dealers don't want to be caught with these tariffed trucks. In case the tariffs go away, how do you recover that tariff surcharge that you paid the OEM? Right. Fleets feel the same. They don't want to go and add 10 trucks, pay a hefty tariff surcharge on it, and then those tariffs disappear and they've overpaid. So what does everyone do? They sit and wait. They wait, and with a soft market, there's really not a whole lot of demand to go out and add new trucks. But what fleets are doing is they're extending life cycles. And that comes with a cost too that I think a lot of people overlook.

Jason Cuddy:

Yeah, that's a good point. And I and we're seeing out here, obviously the order intake is is is lower, you know, for all the OEs, uh, not just not just the ones we represent. But you're definitely seeing it, that soft market and and agreed, you know, we all thought with the pre-buy, even Cummins was going to pull some engines forward a little bit quicker, and they've you know they've obviously changed the plans with with the uncertainty with the EPA. But you know, 27 there is still technology coming. But no one's loading up for you know for this year like we thought they would. Um and yeah, and it's really uncertainty.

James Menzies:

And and that technology's already been paid for by the OEMs. Right. I mean, they've been working on it for years. They've invested hundreds of millions, if not a billion or more, dollars into it. They've done their seasonal testing, their hot weather testing, their cold weather testing. They're gonna want to recoup that investment one way. So I don't think those regulations will be completely eliminated, but what they look like by the time we hear, who knows? And here we are, weeks out from 2027. Yeah.

Jason Cuddy:

Well, and it's interesting, you talk about you know, uh obviously people are delaying the purchasing, which you totally understand and totally understandable within this market. The challenge is obviously if you're delaying the capital cost of the purchase, you still have maintenance repair costs, you know, which don't necessarily decrease as the vehicles get older. Those parts are still impacted by tariffs, so there's still is a you know a cost to that. And then what we're seeing now with with the newer technology, uh, you know, with the OEs we represent, but obviously everyone does, is the newer technology definitely seems to be getting better fuel economy. So there is almost a tipping point. You gotta run some some really thorough TCOs to really see if holding on to equipment even another year, year and a half is makes sense because the between the fuel cost savings and some other savings, you it may offset what you think is to spend, but you know, the capital costs up front, which does hurt. But there could be a quicker return to your investment than if you kind of hold on to equipment for the year and a half.

James Menzies:

Right. And I'm not sure all fleets think that through on a sophisticated level like that. But um, if you get at a step with your traditional trade cycles, it's not so easy to get back into step either. So that that's something to be considered as well.

Jason Cuddy:

Yeah. And I think the other concern too, obviously, if you hold on to stuff as the market keeps softening, you know, you're gonna have companies that kind of you know go underwater and you've got you know, fire sales and equipment, stuff going to auction, so it reduces your potential revenue of the trade-in values or to sell of the old equipment, which maybe on the books are much higher than what the market's gonna bear too. So there's a lot of factors that are very uncertain.

James Menzies:

It seems like an easy solution. Hang on to your equipment longer, sweat the asset, but really it comes with a lot of a lot of uh implications.

Jason Cuddy:

Yeah. And you know, when we talk about uncertainty, obviously the biggest one is tariffs as we talk here, you know, going into 20, going into 26, we we have some line of sight to your point. You know, they're they want to tariff uh equipment that's not made in the USA, but obviously there's you know nuances and asterisk to hold you know what that actually impacts and what it affects. So what do you what are you hearing from the different you know between fleets and and other OEs as far as how they're kind of managing through this?

James Menzies:

OEs are are trying to um near source as much as they can, but there's only so much you can do. And you look at they're they're all great big global manufacturers with manufacturing and suppliers, uh supplier base that's around the world. Right. You know, I was at an event recently where where um one of the leaders that come and said it's just it's not the engine, it's every little piece on the engine, it's every piece of metal that comes from places that you know maybe we didn't really pay a lot of attention to before, and now we have to try to bring some of that production to the United States. When it comes to transmissions, um at the same event, uh a speaker from Allison said, you know, we don't even have the forging equipment in the US that we need to make our transmissions here. Right. And it would take years to source that, secure it, bring it here, and get it up and running. So it's not like flicking flipping a switch for these OEMs, and they're trying to figure it out as they go because the rules keep changing.

Jason Cuddy:

Yeah, it's a good point. That's the challenge with it, right? It's you know, the tariffs are obviously designed to bring you know stuff back in-house, but it is what you're saying, it can't just be done overnight. There's some little things that can be done, and obviously most of the OEs have you know probably one or two plants you know within the U.S. that they can then move stuff around to meet production needs for the US versus Canada and you know into Mexico. So you can you can play with it to a certain extent, but it is it's a challenging, it's a juggle, you know, for everyone to figure out.

James Menzies:

Absolutely. And at the same event, there was a trailer manufacturer who said, even if I do bring production to the U.S., I still don't think I can get the workforce. Right. Unemployment's still fairly low there. The economy for now is hanging on. And um it's not just it's not sample to produce everything domestically within the within the borders of the United States. No.

Jason Cuddy:

I think that lesson will be learned at time, but uh, well, it's a global supply chain for a reason, right? It's kind of we we built up that way, which but you know, and driving all of this uncertainty for you know the the carriers obviously is rates. You know, rates still seem to be fairly depressed. What's uh what are you hearing from from that world?

James Menzies:

Yeah, you know, we're in um RFP season now, and they're they're starting to get some um some opportunities to bid, and uh what I'm hearing from the the carriers is that uh fleets are are still not in the driver's seat when it comes to rates. Um shippers are still taking advantage of the current market and there's a lot of pressure under rates still because there's too much capacity. And shippers are are willing to take advantage of that. Um basically the publicly traded fleets in the US, the big guys were saying that they see reason for optimism in the second half of 2026, but not before then, based on on what they're seeing. Some shippers, some forward-looking shippers are beginning to look at locking in capacity because they know it can't stay like this forever. They know that it's um it's a cyclical industry and eventually the the pricing pendulum is gonna swing the other way. Right. And they all have short memories, but not so sure that they don't remember what it was like after COVID. Right, fair. So I mean I think some of the smarter shippers will start to to plan for the recovery, um, but we're not seeing it yet. And even the spot market is it's still just sort of it's steady at least. It's not volatile. True. And there's freight to be hauled, but it's not growing and uh and the rates are are still uh down on the dump. Um the consensus from Bob Costello, who's the the chief economist at the American Trucking Associations when he spoke at at their conference was that this will not be a demand-based recovery. It's going to be a capacity-based recovery, which is sad because that means there's going to be a lot of bankruptcies and a lot of people that that leave the industry because they just can't make it.

Jason Cuddy:

Yeah, and you're seeing it, right? I mean, there was, I think, something in the news yesterday, you know, with within Canada, you know, a couple carriers that are struggling. Uh you saw a lot in the US, obviously. And and I know there's, you know, there's been a lot of other, you know, undertones with how carriers are set up and uh things within the market that you know are driving that. So some may welcome that change, some obviously don't. But at the end of the day, it's unfortunate because you you are having carriers, you know, go out of business, um, but it will then change the capacity demands, which hopefully then increases the rates and then drives back some certainty and some sort of stability back into the industry for sure.

James Menzies:

And the market doesn't discriminate. There will be good carriers, well-run carriers, as well as poor-run carriers that are driven out of the market in these conditions.

Jason Cuddy:

Yeah. Yeah, no fair. And so you know, we talked about this last year. It's funny because we you you mentioned the the forecast is you know kind of flat until second half of you know next year, and then you know, maybe a a bit of a gradual rise. And I think we said that this time last year about this market that we're in now. We you know, it's it's been steady, I guess. It's been soft for sure, but it's been steady, steady through. There's been no real big peaks, there's been no pickup, you know, as we're speaking now, nothing's really looking like it's gonna you know jump through the end of the year.

James Menzies:

So um I was talking to a forecaster and I referred to the the freight recession, it corrected me and said, No, no, James, there's freight. It's not a freight recession, it's a rate recession. Right. Which is a different way to look at it, but I think it makes a lot of sense. Yeah. And you know, I the reason why there's a lot of this optimism coming from the big US carriers about capacity leaving the market is because there's crackdown now on non-domiciled CDL holders. Right. And these are people that don't necessarily live in the state where they got their CDL. Some states were more handing them out more liberally than others. Some of them are not even legal residents of the United States. And now there's a a big enforcement drive underway to get these guys off the off the road. And we're hearing about um, you know, checkpoints in Arkansas and Illinois and other states. And in addition to that, they lapse after two years. So there's at least 200,000 of these licenses that are set to lapse over the next two years. Gotcha. And that might be the catalyst to get the capacity out of the market that will lead to stronger rates. And again, I think everyone would rather it be a market-based recovery where freight increases. Um, because you know, it's kind of a tragic story to watch unfold. These are all humans with their lives and livelihoods that are being lost, but at the same time, um, we probably never should have been in this situation in the first place with that many unqualified drivers on the road.

Jason Cuddy:

No, fair. And the challenge with it too in the US is navigating, you know, what what you're seeing from a federal level, like you said there with the checkpoints. But then even certain states are kind of imposing or talking to impose statewide regulations with regards to, you know, foreign drivers with a CDL license, whether it's Canadian or Mexican, potentially, right? Obviously, there's asterisk to all this. But again, it goes back to this whole uncertainty as rates and like it's it's all I think uncertainty is the biggest navigator of all this.

James Menzies:

Yeah, we we talked last time about the English language proficiency requirements, which was another um thought that there was a thought that that could take a lot of capacity off the road. We haven't really seen that. Um and we haven't seen and the Canadian fleets I've talked to haven't been overly affected by that. Um, some have had their drivers tested. I haven't heard of many that have had them taken out of service. It seems like most of that enforcement is happening in the southern states along the Mexican border.

Jason Cuddy:

Right.

James Menzies:

And the out of service rate, even though it's supposed to be an automatic out-of-service, the out of service rate of those that are failing the English language proficiency exams is actually pretty low because a lot of those drivers are only allowed to haul into the border zone exchange, drop the trail and go right back to Mexico, and they're not placing them out of service. So that's not having the huge impact on capacity that we thought it might.

Jason Cuddy:

Fair. And I guess the one thing we're still trying to gauge, and you mentioned on it earlier, was you know, is there a pre-buy for 27? Because you know, now we are at the tipping point where, yes, with you know, some unknown EPA regulations, some things have been dialed back, but as you mentioned, the OEs have invested heavily into the 27 engines and they're all going to be there for Gen 27 production. So, you know, what what do you hear there? Do people think maybe this will be the triggering event for a pre-buy?

James Menzies:

It it's funny because the OEMs aren't asking for this to be taken off the books. They've already done the work, they've already spent the money. Um, so who is the APA trying to cater to here um by casting so much uncertainty over it? Uh it's not the OEMs. The OEMs want it to proceed. I think where there could be some some leeway or some flexibility that the OEMs would like to see was the requirement around the extended warranty of the after-treatment system because that was adding a lot of cost. Right. And if that can can be loosened a little bit or done away with and they keep the existing warranty on after-treatment systems, um, then that will lessen the cost to the the fleet and the end buyer. So there are benefits to the new technology, as there always are. Um I don't think there's gonna be a huge step up in in fuel economy this time around, but there there should be some uh improvements in performance from from what we've heard from the OEMs that have been doing the work. So we just need answers. And I I think all the OEMs agree. We just tell us, tell us what we have to do when we have to do it. Um, because they're ready. They're ready and they've they've made the investment, and um, you know, fleets are gonna have to start buying equipment one way or the other.

Jason Cuddy:

Yeah. And I think you'd think, you know, when I look at it from our end, like the soft touch points are the ones you could easily kind of remove, like you said, right? The engines are the engines, they're all in, they've invested the RD money. You know, they want that to proceed because they they put the investment in, you know, the soft touches, like the ext the extended warranty coverage, uh, or even the quota amounts, say you're running in California, you know, one you need by one EV for X amount, credits for you know uh internal combustion. So those are things you can just make go away. Yeah you know, which which is and it doesn't impact the the amount of research and development that's been done to the engines, but yeah, the engines are coming either way, but it would be nice just to have some certainty as to you know what what is required, what is what is the mandate and you know and how and what is the time frame for it.

James Menzies:

Right. That um that regulation, EPA 27, um again, industry uh does isn't asking for that to be taken off the table. I think they were happy to see revisions and changes to GHG3, and that brought with it some mandates to sell more EVs. Right. And as a result of that going away, we're seeing a lot less EV demand. And you know, that was all the rage for the last few years. And here we are, um, you know, in certain applications, they continue to be used and they continue to work well, but um, I don't think we're going to see the the wider spread pickup that we might have thought a couple years ago.

Jason Cuddy:

No, I think the early adapters are in, yeah. And um, you know, all the ones that uh want to take advantage of it have have done so and it's you know seen how it works. And I think everyone's still kind of sitting on sidelines to see what the ROI looks like on that too, right? Because it's you know, how long will the batteries last? What is the cost to replace them? What is the residual value of these vehicles when they hit the open market after their useful life within a fleet? And that's still all unknown, right? So I think everyone's just kind of hanging back and waiting. And obviously, with all the EPA regulations, different guidelines, and you know, incentives and credits kind of coming and going, everyone's, you know, I think from any for higher companies are definitely still sitting back and waiting. And you know, let's see what happens with the first adopters and then go from there. And I I still haven't seen a Tesla semi on the road up here. Have you? I have not seen one yet. Or are we supposed to be saving 50,000 a year or so by now? Yeah. I mean, you know, they're running in the states, they do well for what they do, but it's you know, I think the class eight is always still gonna be it's the infrastructure, really, right? It's it's the the the ability to support the product outside of just like it's coming home every night. And I think that's why we've seen the early adopters who are, you know, the final mile cares. I think those have been really successful, and those will make a lot of sense. You come home, you don't put a lot of miles, there's no range anxiety. They idle a lot, so you take a lot of wear and tear off an engine. So they're great fit for the EVs as far as what they do. You know, the class eight stuff, you know, it it I'm sure it has a purpose, and we've seen them be successful in certain areas, but definitely the infrastructure's not at the same pace as where they're pushing to get the you know, the class eight stuff on the road.

James Menzies:

Right. And you know, I'm not gonna write them off entirely because how many times did the industry dip its toes in a natural gas before finding a product that actually works and suits the needs, which they seem to have right now in that uh 15 liter Cummins? So um, you know, maybe, maybe they'll pull back and maybe again something else will happen. Great. New government, who knows? And then we might hear we might have round two of the the the EV uh explosion.

Jason Cuddy:

Yeah, I know for sure. So I guess based on that, I mean we don't seem to ever get this dead on, but let's uh let's give it a shot. What's what are we thinking we're looking like 26 gonna be? Second half? Yeah, that's a safe thing to say, and that's what everyone seems to be saying. Yeah.

James Menzies:

Um, you know, no one's expecting a quick turnaround. So if you've made it this far, buckle in, stay buckled in, and uh, you know, you're you're survivor. This industry is so resilient. Yes. Uh it can't stay like this forever. It really can't. And and some things to look forward to. You mentioned the fact that there's going to be a big crackdown on on certain drivers in the US. That's gonna remove a lot of capacity from the roads. Um, I heard someone say the other day it's gonna be more than than the impact of mandating ELDs. Gotcha. And that created a bit of a capacity crunch. Uh, here in Canada, we just had a federal budget, our first under Mark Carney, and and he committed a lot of money and had a lot to say about cracking down on on driver ink, the misclassification of of drivers. Right. And I think in Canada, uh a lot of fleets are are wait, you're gonna wait and see how much teeth is the enforcement gonna have, what are the fines gonna look like? Um, but the fact that it's being addressed, I think, gives some hope that maybe some capacity will come out of Canada too. And it might be some of those companies that don't necessarily treat their drivers as they should. And that could be a good thing for the industry. It could clean up the industry. At the same time, it could put some pressure on rates. And maybe, maybe if the government starts talking about this, maybe shippers will start to pay attention to who they use to all the freight.

Jason Cuddy:

Yeah, that's a good point. So, yeah, it's a kind of a wait and see, maybe same as predictions last year. And you know, the you know, to your point, this is a very, you know, resilient industry. It's very cyclical. Like we've been through this. It, you know, it goes down, it goes up, it goes down. That's the you know, it's constant. It's just the factors that cause the up and down are always different. But um, yeah, to your point, I think if you're in it and you're getting through, hang on. You know, there there will be light down tunnel. We just need to get get the rates established, kind of get get some market certainty in place, and then you know, we we should be good to go.

James Menzies:

Uh I think we've at the very least reached the floor. No one sees it getting worse, even if they don't see it getting better right away. Good point.

Jason Cuddy:

Yeah. So well, we'll hang and see. We'll do this again in six months and see how accurate we're on that one. Yeah.

James Menzies:

We've got a perfect track record, right?

Jason Cuddy:

Exactly. Perfect. Well, thanks for doing this again with us. I appreciate it. It's always fun. Yes. And that concludes today's episode. To catch past episodes, check out transportation exchange podcast.ca. Until next time, thanks for watching.