UPDATE 2-Maersk shares drop after China blocks shipping alliance

Tue Jun 17, 2014 1:05pm EDT

* Maersk abandons ship pooling plan after China veto

* P3 alliance involved Swiss firm MSC and France's CMA CGM

* Maersk sees no material impact on 2014 results

* Shares end down 5 pct (Adds details, comments, background)

By Ole Mikkelsen

COPENHAGEN, June 17 (Reuters) - Denmark's A.P. Moller-Maersk has abandoned a planned ship pooling network after China's Ministry of Commerce surprisingly announced it had not approved it.

The idea, known as P3 and announced last June, called for the company along with Swiss firm Mediterranean Shipping Co (MSC) and France's CMA CGM to pool about 250 ships to cut costs.

"This is very negative for Maersk. They won't achieve about $1 billion in cost savings, equivalent to 5 to 6 percent of unit costs," analyst Jacob Pedersen at Sydbank said on Tuesday.

Maersk shares, which had surged earlier this month to a near seven-year high of 14,560 crowns, closed down 5.3 percent compared with a 0.7 percent fall in the Danish benchmark index .

China's Ministry of Commerce said in a statement it did not believe assurances put forward by the companies involved in P3 would be enough to protect the interest of consumers.

The decision is in contrast to views taken in the United States and Europe.

In March the U.S Federal Maritime Commission decided to allow the network agreement to become effective in the United States and on June 3 the European Commission said it had decided not to open an antitrust investigation into the deal.

Maersk admitted it had been taken aback by the Chinese stance on an agreement it thought would command general support.

"It's a big surprise. We definitely had the impression that this went in the right direction," Chief Executive Nils Smedegaard Andersen told Reuters.

COST REDUCTIONS

Andersen said P3 would have enabled its container shipping unit Maersk Line to make reductions in costs and CO2 emissions.

"Nevertheless, I'm quite confident Maersk Line will accomplish those improvements anyway," Andersen said, adding he did not expect the lack of implementation of the P3 Network to have a material impact on Maersk Group's expected results for 2014.

While the container shipping industry as a whole has struggled to make money in a market with too many vessels and too few goods to move, Maersk Line has improved earnings the last five quarters.

P3 had been criticised by cargo owners and shippers' groups because of fears it could dominate key trade routes, pushing out smaller carriers and potentially driving up prices.

The alliance would have had more than 40 percent of Asia-Europe and trans-Atlantic trade and 24 percent of the trans-Pacific market, according to industry estimates. Its abandonment sends the Danish group back to the drawing board in its quest for efficiency measures, analysts said.

"Maersk may have been planning to utilise some of its P3 partners' vessel capacities to continue to upsize its fleet," analyst Bonnie Chan at brokerage Jefferies wrote in a note to clients. "Without the P3 alliance, the company may now have to invest more in the container shipping segment."

At shipping association BIMCO, analyst Peter Sand wrote in a note: "With direct consolidation being absent, the troubled industry is likely to seek new ways to improve earnings at a point where it is necessary to bring back profitability beyond the level of survival." (Additional reporting by Shida Chayesteh and Brenda Goh; Editing by David Evans and David Holmes)

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