Hot Costs – Market Commentary

 [London, July 2018] – Many are making the most of the summer months, enjoying long holidays while schools are closed and are taking advantage – especially in typically cooler climes like the UK – of the heat wave. But soaring temperatures from the USA to the Far East has led to some countries, like Japan, declaring it to be a natural disaster after their heatwave was followed by severe tropical storms. Here in the UK, we love to talk about the weather, and with temperatures expected to be over an uncharacteristic 34°C today with no signs of it cooling anytime soon over the next few weeks, we have a lot to talk about. 

While some may be excited by the extra free “tanning” time, all may not be so “sunny”. From an economic standpoint, several reports suggest that climate change will affect growth, particularly in some of the world’s poorest nations. The effect of short temperature “shocks” is unlikely to have much impact on productivity, however climate change, which by definition would result in a permanent overall increase in temperature, will. A recent study showed that climate change will widen the gulf of inequality between rich and poorer nations in the upcoming decades as the latter has a much larger share of their GDP in the agricultural sector, and have an industry that features more outdoor work. Countries with hot climates need to have an economy that is around three times larger than countries with cooler climates to be able to ride out the impact of significant temperature rises. It is estimated that the these countries will be 5% worse off by the end of the century, as the impact on productivity would decelerate, but not reverse, economic growth. Elsewhere in the UK, we have seen a change in spending habits as a result of the weather, with an unexpected fall in retail sales volumes, while supermarket sales spiked. People are buying things needed to cope with or enjoy the hot weather (ie: BBQs, fans, sun creams, drinks), to the detriment of retailers as buyers avoid going to the shops or even sitting indoors ordering online. A fifth of the UK’s GDP is attributable to retail sales.

From a shipping standpoint, ports are having to take climate change seriously, and have started considering adjusting their designs to be sustainable and ready themselves for rising sea levels. Developers who have just announced the expansion plans for the Port of Vancouver have been accused of not sufficiently taking into account climate change in their design. Many port operators around the world are having to ready themselves for the increased threat of rising sea levels and storms. The Port of Rotterdam is protected against flooding by dykes and has many of its facilities elevated above sea level, however the port authority has chosen to conduct a study into the potential consequences and the measures needing to be taken in response to climate change. A separate study by Asia Research and Engagement (ARE) noted that to upgrade some of the largest ports in the Asia-Pacific region to cope with the effects of climate change could cost up to $49Bn. It doesn’t take much to realise just who those costs would be passed on to.​ [July 2018 SPI Marine].