Key Performance Indicators in the Railroad Industry

There are five Class 1 Railways traded in the US market. If you look at each railway’s respective annual and quarterly filings, all of them report certain key performance indicators (KPIs). Within the annual reports, the railway identifies the total number of revenue tons. In effect this identifies the total volume of tonnage moved. With quarterly filings, the primary KPI is the number of rail cars moved during the period. In addition, they identify the volume of rail cars moved in a mix of various products. The key here is that each product moved has a different charge rate, thus certain products moved are more lucrative to the rail line over others.

A third KPI identifies the average speed of the rail line. The average reader wouldn’t think this is important, but in reality it is a critical aspect of understanding the railroad’s performance. The higher the average speed, the lower the overall cost to transport the product thus improving gross margins. This article introduces the reader to these various KPI’s and prioritizes KPI’s so an investor can discern the potential for profit. The sections below cover the common terms used to measure productivity in this industry. 

Key Performance Indicators – Revenue Ton Miles

In the transportation sector of the economy, the key to success is the ability to move weight for the least cost per mile of travel. The common weight measurement is tons. In the railway industry the most important term used is ‘revenue ton miles’. The Bureau of Transportation defines this as the number of tons hauled one mile. Think of it as an average revenue per ton per mile of travel. It doesn’t indicate profitability because it clearly doesn’t express the cost per mile. However, the more tonnage, the more sales revenue generated by the railway company. For example, Canadian Pacific reports that during the week of November 9, 2019, the railroad company moved one ton of freight 3,138,000,000 miles (3.1 Billion Revenue Ton Miles). Naturally, they didn’t just move one ton of freight 3.1 billion miles. The Bureau of Transportation reports that the average Class I revenue per ton in 2018 equaled 4.23 cents per mile. Assuming Canadian Pacific charged 4.23 cents per ton mile, then Canadian Pacific’s revenue during this particular week equals $132,737,400. Let’s assume this is the normal volume per week; if we multiply this times 52 weeks, Canadian Pacific’s total revenue for 2019 would approximate $6.9 Billion; coincidentally, Canadian Pacific’s actual revenue in 2019 was $6.0 Billion. Doing some research reveals that Canadian Pacific’s actual revenue tonnage in 2019 was 154.4 Billion tons (about 2.97 Billion Revenue Ton Miles/Week). Taking 154.4 Billion times 4.23 cents per ton mile we get about $6.5 Billion of revenue. Thus, it appears Canadian Pacific charges slightly less per ton mile than the average for all Class I railways.