Revenue Ton-Miles

Revenue Ton-Miles (often abbreviated as RTMs) are a fundamental unit of measurement in the freight transportation industry, especially for railroads, trucking, and air cargo companies. Don't let the “revenue” part fool you—this metric doesn't directly measure money. Instead, it measures the volume and distance of freight being moved. The calculation is wonderfully simple: the total tons of paying cargo multiplied by the number of miles that cargo is transported. For example, moving 10 tons of cargo over 500 miles generates 5,000 RTMs (10 tons x 500 miles). The “revenue” in the name simply distinguishes paying cargo from non-revenue freight, such as company supplies being shipped for internal use. In essence, RTMs answer the simple but powerful question: How much stuff are we moving, and how far are we moving it?

For investors, particularly those with a value-investing mindset, RTMs are a goldmine of information. They act as a vital sign for a transportation company's operational health and a powerful indicator of broader economic trends. Think of a company like BNSF Railway, a major holding of Warren Buffett's Berkshire Hathaway. An increase in its RTMs signals that more customers are paying to ship more goods across its network. This surge in traffic volume is often a direct precursor to higher revenue. When you see RTMs climbing quarter after quarter, it's a strong sign that the company is capturing more business and that demand for its services is robust. Conversely, a sustained drop in RTMs can be a major red flag. It might suggest the company is losing market share, or more broadly, that the economy is slowing down. Because freight transport is the circulatory system of the economy—moving raw materials to factories and finished products to consumers—RTM figures provide a real-time pulse on industrial and consumer activity.

While the headline RTM number is useful, the real insights come from looking at the data more closely.

A single RTM number is just a snapshot. The real story is in the trend. Smart investors look at RTM data over several quarters and years to identify patterns.

• Growth or Decline: Is the company consistently growing its traffic volume, or is it stagnating or shrinking? Consistent growth is a hallmark of a strong, competitive business.
• Seasonality: Many transportation businesses are seasonal. For example, a railroad that hauls agricultural products will see a spike in RTMs during harvest season. Understanding these cycles helps you distinguish a normal seasonal dip from a genuine business downturn.
• Freight Mix: Companies often break down RTMs by cargo type (e.g., coal, intermodal containers, chemicals). A shift in this mix can tell you about changing economic winds or a strategic pivot by the company. For instance, a rise in intermodal (consumer goods) RTMs might point to strong retail sales.

RTMs are an excellent tool for comparing the scale of two companies in the same industry. If Railroad A has 200 billion RTMs and Railroad B has 100 billion, it's clear that Railroad A is the larger operator in terms of traffic volume. This can help you understand market share and competitive positioning. However, never use RTMs as your only point of comparison. A bigger RTM number doesn't automatically mean a better investment.

High RTMs are great, but they are only part of the puzzle. A value investor knows that volume is vanity, but profit is sanity.

The crucial question is: Is the company making good money from all that traffic? To answer this, you need to pair RTMs with profitability metrics.

• Revenue per ton-mile (Yield): This metric shows how much money the company makes for moving one ton of freight one mile. It's calculated as: Total Freight Revenue / Total RTMs. A company might increase its RTMs by hauling low-value, low-profit goods, which could actually hurt its bottom line. A rising yield is a sign of pricing power.
• Operating ratio: This measures a company's operating expenses as a percentage of its revenue. A lower operating ratio is better, as it indicates greater efficiency. A company could have booming RTMs, but if its costs are out of control (a high operating ratio), it won't be a good investment.

The punchline is that you want to find companies with growing RTMs, strong (or improving) revenue per ton-mile, and a low, well-managed operating ratio. That’s the trifecta of a high-quality, efficient, and profitable transportation business.