Frontiers of trade: Climate, weather and international trade 

This is the sixth and final edition of our Frontiers of Trade series, where we look at the trade issues businesses will face in the coming decade. The first looked at the rules governing the origin of a resource mined in space, the second asked who is liable when an autonomous AI agent executes a trade, the third asked whose verification counts at the border, the fourth looked at the growing focus on biotechnology as a national security issue, and in the fifth we used Flint’s new Future Advantage Stress Test (FAST) to assess the impact of changing sources of comparative advantage on businesses decision-making. 

For our final piece, we look at a topic relevant to the entire global trade ecosystem: the impact of the changing climate and weather patterns on international trade and supply chains.  

The impact of climate change on trade is usually discussed in terms of climate policy: carbon pricing, subsidies, green standards and measures such as the EU’s Carbon Border Adjustment Mechanism. 

But at a more structural level, climate change will impact where some goods can be produced competitively, how reliably they can be transported, and, ultimately, how much it costs to get them to market.  

These changes have the potential to fundamentally alter existing patterns of international trade, creating winners and losers even in the absence of any change in trade policy.  

Consider this scenario: consistent warm weather has caused a months-long drought in the Panama Canal. The Canal Authority has significantly reduced daily transits, and a vessel transporting goods from the east coast of America to Asia is unable to traverse. The vessel decides to pay an increased fee in a slot auction, allowing it to pass through the Canal on schedule and avoid additional costs of demurrage and missed delivery slots. Another vessel carrying the same cargo is unable to pay this higher fee and is delayed by weeks, with goods delivered late and additional fees paid for fuel, insurance and new delivery slots at the destination port.   

There has been no change in the tariff on the goods being transported. Nor have the rules governing access to the destination market. But the cost of supplying that market has.  

This piece looks at where these effects are already emerging, and what they could mean for businesses and their supply chains.  

The global shifting of production 

The effects of climate are already visible on agricultural production and growing zones. Extreme heat, drought and changing rainfall patterns are impacting geographic yields and changing countries’ natural endowments.  

For businesses, changing growing conditions could make existing sources of supply less competitive and create alternatives elsewhere.  

But switching suppliers can take time, and any potential climate-related advantage will need to be weighed against other costs, including labour, the possible loss of FTA preferences and increased transport costs. Businesses dependent on climate-sensitive inputs therefore need to understand where alternative sources of supply might emerge and the terms on which they can access their main markets.  

Changing trade routes 

Shipping chokepoints, by their nature, have always been a source of risk for international trade and historically linked to geopolitics and conflict. The Strait of Hormuz is an obvious example. The Taiwan Strait and Strait of Malacca are other chokepoints where governments have taken steps to reduce the risk of disruption caused by geopolitical tensions.   

However, the increasing effect of climate on trade expands the sources of disruption significantly. Indeed, our hypothetical scenario is based on the real-life instance in 2023 when severe drought forced the operators of the Panama Canal to significantly reduce traffic. This year has also seen major disruption to inland shipping, notably in the Rhine and Danube, both of which have experienced record low water levels.  

For an individual shipment, the consequences of this sort of disruption are familiar: delays, higher charges or the need to find an alternative route. 

However, if a route becomes consistently more expensive or unreliable, this starts to affect the competitiveness of the supply chains that depend on it. A supplier with easy access to an alternative route may gain an advantage over one that remains dependent on a climate-exposed chokepoint. Businesses may also choose to hold more inventory, use different transport modes, or source from somewhere else altogether.  

While increasing attention is being given to newly accessible Arctic shipping routes, in practice their use will be limited in the coming years given capacity, and they will be heavily exposed to geopolitical factors that could see disruption and additional costs imposed on their use.  

The physical resilience gap 

Trade infrastructure – including ports, roads and railways – faces similar exposure to climate-related disruption. 

Research from the United Nations Economic Commission for Europe (UNECE) estimate that European transport systems will be subject to between 10 to 50 additional days of temperatures above 25 degrees Celsius by 2050, increasing the chance of thermal damage to infrastructure.¹ Separate analysis estimates that approximately 86% of ports globally are exposed to multiple categories of weather risks.² 

The extent to which this affects trade will depend in part on what governments and infrastructure operators do about it.  

Some multilateral initiatives exist to help operators assess risk exposure and to put in place climate adaptation plans, for example National Adaptation Plans agreed through the UNFCCC and the World Bank’s Climate Screening Tools. But countries have very different capacities to fund the investment required.   

This gap is already emerging, with numerous examples of governments and operators in developed countries with climate resilience plans in place, for example the US National Climate Resilience Framework and the Delta Programme in the Netherlands. By contrast, there are some estimates that the required amount of climate adaptation financing for developing countries to effectively protect trade infrastructure is 12 to 14 times higher than current contributions.³  

Two ports exposed to the same underlying climate risk need to experience the same outcome if they are to remain viable and competitive. Investment in flood defences, cooling, drainage or alternative transport connections can keep one operating when another is disrupted. 

For companies deciding where to invest or source from, the resilience of the infrastructure around a production site could therefore become increasingly important. And for countries, the ability to keep goods moving reliably could become a more important source of competitive advantage. 

The pricing and function of risk mechanisms 

Climate risk will also increasingly show up in prices. 

Transportation insurance and force majeure clauses are two of the main mechanisms businesses use to protect themselves against the costs of disruption. 

The effects of climate on trade are changing how these are calculated and applied in practice as climate disruption and extreme weather become more predictable and trackable, and move from rare to recurring events.  

As these risks become more frequent, insurers will price them accordingly and businesses will need to decide how much of the additional cost they are willing to bear. Contractual protections may also become harder to rely on where events that were once considered exceptional become foreseeable. 

The result is that climate exposure can increase the cost of a supply chain even when no disruption actually occurs. Higher insurance premiums, additional inventory and contingency arrangements all come at a price. 

What should businesses do? 

None of this means businesses should attempt to predict exactly how climate change will reshape global trade. But they can identify where their existing supply chains are most exposed and test what would happen if current assumptions no longer hold. This includes: 

• Identify alternative sources of supply: Where production is particularly exposed to changing weather patterns, businesses should understand where the same, or similar, product could be sourced elsewhere and at what cost. 

• Consider the trade implications of switching suppliers: Alternative suppliers may face different treatment, including tariffs, quotas or rules of origin . These costs should form part of any assessment of supply chain alternatives. 

• Map transportation exposure and chokepoints: Where supply chains depend on a chokepoint with historical exposure to climate impacts or a production region exposed to climate impacts, businesses need to be actively considering alternatives and the commercial impact of increased costs. This may need to include alternative modes of transportation, including overland routes or air freight.  

• Look at infrastructure as well as suppliers: Even if a supplier is resilient, the infrastructure needed to transport the goods it produces may not be. Businesses will need to actively assess where this risk is material and whether they need to consider alternative transportation options.  

• Factor in additional costs: Some costs, including longer shipping times, higher insurance costs, and higher charges for use of ports, are likely to be unavoidable to some extent. The possible impact on product cost should be factored into commercial models and operational decision-making. 

• Review protection mechanisms: Insurance and contractual protections should be reviewed as climate-related disruptions become more frequent and predictable, including to understand where the costs of delay and disruption ultimately fall.   

Return to the vessel in the Panama Canal. The steps it took in response to the situation demonstrate how climate change will not affect all countries, products or trade routes equally. It will change the relative cost of producing and transporting goods in different places, shifting patterns of comparative advantage. Businesses that assume today’s patterns will remain fixed and are unable to adjust to this new reality risk being caught out. 

¹ https://unece.org/transport/publications/climate-change-impacts-towards-climate-resilient-transport-systems  

² Verschuur, J., Koks, E.E., Li, S. et al. Multi-hazard risk to global port infrastructure and resulting trade and logistics losses. Commun Earth Environ 4, 5 (2023). 

³ https://www.unep.org/resources/adaptation-gap-report-2025  

Will Haworth is an Associate Director who advises businesses on trade, geopolitics and economic security; Zoe Forbes is an Associate Director in Flint’s economic modelling team and Francois-Joseph Schichan is a Partner who leads Flint’s Geopolitics practice.  

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