Economics on the Silk Road: Don't keep on truckin'

Yellow retires its wheels. Photo source: AP

The business reporters, with their usual charming innocence, tell us that the reasons for Yellow Trucking's demise can be found in Yellow and union press releases. The union killed us, says Yellow. Mismanagement, says the union.

Yellow's problem is that it cannot pay off debts and workers. It can't find investors to cough up the cash. Granted, this may be because Yellow executives need a clue or the Teamsters went too far. But the truth is probably simpler: Trucking has been on the skids for four years.

Figure 1 shows the ratio of the freight index, which measures freight volume, and which trucking dominates, to gross domestic product, which measures the value of US output. The freight share of GDP has fallen steadily since the beginning of 2019. The New York Times suggests that trucking has increased, especially small truck firms. But what matters is the relative demand for trucking, since investors will look for the industry that gives them the best return to their moolah. The relative demand for trucking is shown by Figure 1. It has been falling since even before the 2020 recession.

Now suppose that the relative demand for the segment of the trucking industry that includes Yellow is rising. Also suppose that investors think that this segment can withstand the overall decline in trucking in years to come. And yet they pass on investing. Then the case for feckless executives or union leaders strengthens. But one must first check out the "supposings."

In fact, relative demand for freight has risen over 17 years. As a function of quarters, relative demand since 2007 follows the regression equation .9008 + .0006 Quarter. That is, over 10 quarters, relative demand rises by three-fifths of a percentage point. The chances that there is really no time trend are virtually nil. (Note for stat fiends: The P-value for the Quarter coefficient is .0009.)

Why do people demand more freight over time? One reason may be that they are growing richer, so their time becomes more valuable. We have only 24 hours a day but may have any amount of money. To save time, people may order online rather than drive to the stores. And the growing convenience of online shopping may induce us to shop more.

Yes, a lot more is going on here than just the passage of time, which accounts for only a seventh of the fluctuation that occurs in relative demand from quarter to quarter. As we'll see, the business cycle matters. Still, there is no obvious reason here to dismiss freight as a good investment to hold for years. Since investors passed up this opportunity, they either are mesmerized by short-run returns or worried about clueless business leaders.

Figure 2, from the US Bureau of Economic Analysis, shows that freight suffers more than most industries from recession (depicted by the gray columns). Yellow borrowed $700 million (million, New York Times, not billion) in the pandemic of 2020 but never recovered. Yet another bailout success story to warm the heart, and one that strengthens the suspicion of incompetence in the swank offices of Yellow or the Teamsters.

Finding the basic data for this analysis took all of 90 seconds.

When a firm or union knows that a story about it will hit the headlines, it will take advantage of this to make political points of its own. But not even the stenographers of The New York Times have to lap it up. They can do the numbers. -- Leon Taylor, Baltimore, tayloralmaty@gmail.com