What Is a Revenue Ton Mile?

A revenue ton mile refers to a metric used in the freight, shipping, and transportation industries. Usually reported by railroad companies. a revenue ton mile measures how much revenue a company makes per volume of freight transported. This basically translates to the revenue earned for transporting one ton of freight across one mile. This metric is an important factor in determining the profitability of companies in the transportation industries.

Key Takeaways

  • A revenue ton mile is a metric used in the transportation industry.
  • One revenue ton mile is the revenue earned for transporting one ton of freight across one mile.
  • Revenue ton miles are used primarily by railroad companies.
  • Revenue ton miles are directly related to the economy—revenue ton miles increase when the economy grows, and decline during a slowdown.

Understanding Revenue Ton Miles

Revenue ton miles are commonly used in the transportation industry. They calculate how much freight a shipping or transport company moves over a certain distance—most notably by railway companies. In simple terms, a revenue ton mile is the amount of revenue collected to transport one ton of goods a single mile is what is referred to in segments of the transportation industry as a revenue ton mile.

This metric is calculated by multiplying the shipment's weight in tons by the number of miles that it is transported. To avoid posting a loss, a company must be able to record a profit for every mile on cargo that is shipped.

A revenue ton mile is an important determinant of profit in the transportation industry. Since empty freight cars produce no revenue, railroad operators must focus on increasing their revenue ton miles. The financial performance of railroads reflects, in large parts, the state of the economy. This is because railroads are obviously essential in the movement of goods, raw materials, and commodities across the country—east to west and north to south.

Empty freight cars produce no revenue, so railroad companies must increase their revenue ton miles.

Revenue ton miles thus have a direct relationship with the performance of the economy. When the economy is growing, revenue ton miles increase. But when the economy slows down, revenue ton miles decline.

Example of Revenue Ton Mile

Union Pacific is one of North America's largest railroad companies. It covers 23 states with more than 32,200 miles of track. The company's fleet of almost 9,000 locomotives ships cargo ranging from cars, coal, food, forestry and agricultural products, and food.

The company increased its revenue ton miles by 6% from 440 billion in 2016 to 467 billion in 2017—a year when real gross domestic product (GDP) advanced 2.3%, according to the U.S. Department of Commerce. Further analysis is possible with a breakdown of freight type reported by railroad companies. Union Pacific reported modest declines in revenue ton miles in agricultural and chemical products, flat growth in intermodal, incremental growth in automobiles, and significant gains in coal and industrial goods during 2017.

Year-to-year trend lines like these are of interest to management, analysts, investors, and even economists.

Revenue Ton Mile vs. Revenue Passenger Mile

Revenue ton miles are similar to revenue passenger miles (RPMs), the measure used by companies in the airline industry. An RPM shows the number of miles traveled by paying passengers. In order to calculate revenue passenger miles, airline companies multiply the number of passengers by the total distance traveled. Using this formula, 200 passengers on board a flight that travels 500 miles generates the airline a total of 100,000 revenue passenger miles.