Transportation stocks are benefiting from a broad freight market recovery as tighter trucking capacity pushes rates higher and improves earnings prospects across the sector. Investors are increasingly looking for companies that can capitalize on stronger pricing while still trading at reasonable valuations.
BNN Bloomberg spoke with Ari Rosa, senior equity analyst at Citi, who highlighted opportunities in trucking, parcel delivery and rail transportation, while noting that freight fundamentals continue to improve despite ongoing uncertainty around tariffs and cross-border trade.
Key Takeaways
- The freight recession appears to be ending, with transportation stocks outperforming after several years of relative weakness.
- Capacity contraction in the U.S. trucking market is tightening supply, supporting higher freight rates and stronger earnings potential.
- TFI International is benefiting from rising flatbed demand tied to data centre construction and broader infrastructure activity.
- UPS offers a turnaround opportunity as cost-cutting initiatives and efficiency gains are expected to support results in 2026 and 2027.
- Union Pacific is viewed as a defensive transportation play with improving operations and potential upside despite merger-related uncertainty.
Read the full transcript below:
ROGER: It is time for Hot Picks, and today we are looking at three standout plays in the transportation sector. For more on this, let’s bring in Ari Rosa, senior equity analyst at Citi. Ari, thanks, as always, for joining us. Let’s take a bigger-picture look right now. How is the sector doing?
ARI: The sector’s been great. It started the year really strong. I mean, if you look at the Dow Jones Transportation Index, it’s up quite a bit relative to the S&P 500, and so after three years of underperformance — and this is kind of how we wanted to position at the start of the year — we were saying, look, transports have lagged, the freight recession is long in the tooth, it’s time for it to come to an end, and it really has.
We’ve seen some momentum, some pickup in our names. In fact, it actually got to the point where we downgraded a couple of names last week, in part on valuation concerns. But we’ve tried to come with a couple of names that we think still have some upside.
Overall, the supply-demand environment looks better, and we like the direction. It’s just a question of not overpaying and not getting overly excited. But, again, there is opportunity, even amid the noise.
ROGER: Okay, and with that momentum, the supply and demand — are things just generally picking up overall, or is it in regions? What are you seeing?
ARI: The strength is fairly broad-based now. It does tend to be more U.S. than Canada. Cross-border, you still have this overhang from tariffs, from CUSMA, and so there is uncertainty there.
But really, what’s been driving the tightness, or the higher freight rates, has been a supply squeeze, capacity contraction in the United States. That’s been really government-driven. The Trump administration has been making a concerted effort to push non-compliant carriers, and in some cases drivers with questionable legal work authorization, out of the industry.
That has really put a squeeze on truck drivers in the United States, and then that has a ripple effect across the industry because 70 per cent of transportation in the United States is handled by truck. When you squeeze the number of drivers, that’s going to squeeze the amount of freight capacity. That, in turn, is going to benefit the railroads and everyone else.
You’ve seen rates start to move higher, and that should flow through to earnings over the coming quarters.
ROGER: Okay, let’s talk some names now. TFI International.
ARI: Yeah, so TFI is a perfect example of this, and it’s a name — actually, I think last time I was on your show — that we gave to you, and it’s done quite well over the last couple of months.
We think there’s still more room for it to run. Frankly, TFI is a well-managed business, generates lots of free cash flow and trades at a discount to peers. So even though the entire group has moved up, TFI still looks cheap in comparison.
The other thing we really like with TFI is its flatbed exposure. They have this diversified portfolio of transportation companies, and while a lot of people focus on the U.S. less-than-truckload business, which is positioned to do well, that’s a little more of a turnaround story and a little further out on the risk spectrum.
They also have this flatbed business they bought a couple of years ago, and because of the depressed market they hadn’t really been able to reap the rewards of that acquisition. But now, if you look at flatbed spot rates, it’s really been a straight line up.
A lot of that has to do with data centre buildout and other factors, including a resurgence in construction activity across North America. That’s where I think TFI is really positioned to thrive and put up some surprisingly good numbers in the second quarter and beyond.
ROGER: Okay, UPS.
ARI: Yes, UPS has started to pick up a bit, but there’s no question it’s been a laggard.
What we like about UPS is it’s in the midst of a multi-year turnaround story. In addition to the macro support you’re getting from a slightly stronger ISM and a resilient consumer, UPS is now in a position to benefit from the cost-cutting and efficiency initiatives it has undertaken over the last couple of years.
We think that’s really going to start to show up in results in the second half of the year and into 2027.
If you look at free cash flow, which we generally prefer to focus on when possible, UPS actually looks quite cheap. On that basis, we think there could be 20 to 30 per cent upside from these levels.
The other thing with UPS is you have a really nice dividend. From our perspective, there’s not that much downside, and you have a nice upside story if things work out and management can execute.
ROGER: Okay. And last one, Union Pacific.
ARI: Yeah, so Union Pacific is interesting. That’s kind of our defensive safety play.
Union Pacific is executing really well right now. Their CEO, Jim Vena, has brought a new culture to the company. He was previously chief operating officer and had done some really good things. Union Pacific was hitting some of its best levels in history. He left the company, came back a couple of years later, and you’ve really seen an upturn in a lot of their service metrics.
With service, you get flow-through to efficiency, margins and profitability. You also have this tailwind because, as trucking prices and rates move higher, that tends to benefit rail rates as well. There is a lag effect to that, but Union Pacific is well-positioned as a diversified blue-chip name.
Similar to UPS and TFI, it generates a lot of free cash flow.
The one uncertainty with Union Pacific is that it’s involved in this merger process, and that process has become a bit messy. There are a lot of uncertainties, and I think that’s keeping many investors on the sidelines.
But when you talk to people who truly know transportation, I think there’s almost unanimous consensus that Union Pacific is cheap. It works on a standalone basis, and if the merger goes through and receives approval, there’s additional upside.
You’re really looking at a very favourable risk-reward profile with Union Pacific.
ROGER: Okay, we’ll leave it there. Ari, thanks, as always, for joining us.
ARI: Thank you.
ROGER: All right, Ari Rosa, senior equity analyst at Citi.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TFII TSX | N | N | N |
| UPS NYSE | N | N | Y |
| UNP NYSE | N | N | Y |
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This BNN Bloomberg summary and transcript of the June 23, 2026 interview with Ari Rosa are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
