UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 31, 2004                  
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

Commission file number 001-32326

U.S. SHIPPING PARTNERS L.P.(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction of incorporation or organization)                       |  | 20-1447743(IRS Employer Identification No.)
|-------------------------------------------------------------------------------------------- |  | -------------------------------------------
|399 Thornall., 8th Floor
Edison, NJ 08837(Address of principal executive offices)
(Zip Code)
|(732) 635-1500(Registrant's telephone number, including area code)                          

Securities Registered pursuant to Section 12(b) of the Act:

|Title of each class
Common units |  | Name of each exchange on which registered
New York Stock Exchange
|-------------------------------- |  | -----------------------------------------------------------------

Securities Registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.     ý

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The registrant's common units were not publicly traded as of the last business day of the registrant's most recently completed second quarter. The aggregate
market value of the registrant's common units held by
non-affiliates as of March 17, 2005, based on the reported closing price of such units on the New York Stock Exchange on such date, was approximately $177,590,000. The number of
common units outstanding of the registrant's common units as of March 17, 2005 was 6,899,968. At that date, 6,899,968 subordinated units were also outstanding.



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U.S. SHIPPING PARTNERS L.P.  2004 ANNUAL REPORT ON FORM 10-K  TABLE OF CONTENTS

|         |  |                                                                                                                   |  | PAGE
|-------- |  | ----------------------------------------------------------------------------------------------------------------- |  | ----
|PART I  
|ITEM 1   |  | BUSINESS                                                                                                          |  | 5   
|ITEM 2   |  | PROPERTIES                                                                                                        |  | 26  
|ITEM 3   |  | LEGAL PROCEEDINGS                                                                                                 |  | 26  
|PART II 
|ITEM 5   |  | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SECURITY HOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 27  
|ITEM 6   |  | SELECTED FINANCIAL DATA                                                                                           |  | 33  
|ITEM 7   |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             |  | 36  
|ITEM 7A  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                        |  | 74  
|ITEM 8   |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                       |  | 75  
|ITEM 9   |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                              |  | 75  
|ITEM 9A  |  | CONTROLS AND PROCEDURES                                                                                           |  | 75  
|ITEM 9B  |  | OTHER INFORMATION                                                                                                 |  | 75  
|PART III
|ITEM 10  |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                                |  | 76  
|ITEM 11  |  | EXECUTIVE COMPENSATION                                                                                            |  | 80  
|ITEM 12  |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SECURITY HOLDER MATTERS                |  | 87  
|ITEM 13  |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                    |  | 90  
|ITEM 14  |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                            |  | 93  
|PART IV 
|ITEM 15  |  | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                        |  | 95  

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FORWARD-LOOKING STATEMENTS

Statements included in this report which are not historical facts (including statements concerning plans and objectives of management for future operations or
economic performance, or assumptions related thereto) are forward-looking statements. In addition, we may from time to time make other oral or written statements which are also forward-looking
statements.

Forward-looking
statements appear in a number of places and include statements with respect to, among other things:



These
forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and therefore
involve a number of risks and uncertainties. We caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the
forward-looking statements.

Important
factors that could cause our actual results of operations or our actual financial condition to differ include, but are not necessarily limited to:



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Please
read Risk Factors in Item 7 of this report for a discussion of the factors that could cause our actual results of operations or our actual financial condition to differ from our
expectations.

INDUSTRY DATA

Market and industry data and other statistical information used throughout this filing are based on independent industry publications, government publications and
other published independent sources, as well as on several studies conducted for us by Wilson Gillette & Co., Petroleum and Logistics Specialists, who we refer to in this filing as Wilson
Gillette. The most recent government data available regarding the petroleum industry are for 2003. Some data are also based on our good faith estimates, which are derived from management's knowledge
of the industry and independent sources. Although we believe that these sources are reliable, we have not independently verified the information and cannot guarantee its accuracy or completeness.
Similarly, we believe our internal research is reliable, but it has not been verified by any independent sources.

Unless
otherwise indicated, the market and industry statistical data that we use in the discussion of the tank vessel industry contained in "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" have been provided to us by Wilson Gillette. We believe that the information and data supplied by Wilson Gillette is accurate
in all material respects and we have relied upon them for purposes of this filing and have not independently verified Wilson Gillette's data from other third-party sources. Wilson Gillette has advised
us that:



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PART I

ITEM 1.    BUSINESS

Our Partnership

We are a leading provider of long-haul marine transportation services, principally for refined petroleum products, in the U.S. domestic "coastwise"
trade. We are also involved, to a limited extent, in the coastwise transportation of petrochemical and commodity chemical products. Marine transportation is a vital link in the distribution of refined
petroleum, petrochemical and commodity chemical products in the United States, with approximately 28% of domestic refined petroleum products being transported by water in 2002. Our fleet consists of
eight tank vessels: six integrated tug barge units, or ITBs, and two specialty refined petroleum and chemical product, or parcel, tankers. Our primary customers are major oil and chemical companies. A
significant portion of our fleet capacity is currently committed to these companies pursuant to contracts with initial terms of one year or more, which provides us with a relatively predictable level
of cash flow. We do not assume ownership of any of the products that we transport on our vessels.

Our
market is largely insulated from direct foreign competition because the Merchant Marine Act of 1920, commonly referred to as the Jones Act, restricts U.S.
point-to-point maritime shipping to vessels operating under the U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens and manned by U.S.
crews. All of our vessels are qualified to transport cargo between U.S. ports under the Jones Act.

We
began operations in September 2002 when we acquired our six ITBs from a division of Amerada Hess that was managed by several executive officers of our general partner. Our six
ITBs primarily transport clean refined petroleum products, such as gasoline, diesel fuel, heating oil, jet fuel and
lubricants, from refineries and storage facilities to a variety of destinations, including other refineries and distribution terminals. Four of our ITBs are currently operating under contracts with
Hess, BP and Shell, one of which expires in September 2005 and one of which expires in January 2006, with the remaining two expiring in late 2006. Our remaining two ITBs are currently
operating in the spot market. Regardless of our contract rates and rates in the spot market, we are assured specified minimum charter rates for our ITBs through September 13, 2007, subject to
certain limited exceptions, pursuant to a support agreement we entered into with Hess in connection with our acquisition of the six ITBs.

Our
two parcel tankers, theChemical Pioneerand theCharleston, which we acquired in
May 2003 and April 2004, respectively, primarily transport specialty refined petroleum, petrochemical and commodity chemical products, such as lubricants, paraxylene, caustic soda and
glycols, from refineries and petrochemical manufacturing facilities to other manufacturing facilities or distribution terminals. We have contracts with Dow Chemical, ExxonMobil, Koch Industries,
Lyondell Chemical and Shell with specified minimum volumes that will, in aggregate, account for approximately 74% of the anticipated usable capacity of the Charlestonthrough July 2007 and 75% of
the anticipated usable capacity of theChemical Pioneerthrough February 2007. In addition, these customers are required to ship on our parcel tankers any additional volumes of these products shipped to the ports specified in the contracts. As a
result, we expect these companies will utilize substantially all of the non-committed capacity of these vessels during those periods.

In
August 2004, we signed a fixed-price contract for construction of a 19,999 ton articulated tug barge unit, or ATB, which is scheduled to be delivered in early 2006. We have
entered into contracts to carry commodity chemical products with specified minimum volumes that will utilize approximately 77% of the ATB's anticipated capacity through September 2007 and
approximately 67% of the ATB's anticipated capacity thereafter through June 2010. If delivery of the ATB is delayed, we anticipate that we will either use available cargo capacity on one of our
vessels or charter additional vessels to meet

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our
contractual obligations pending delivery of the ATB. Our ATB construction contract also provides us with options to purchase three additional ATBs over the next 24 months at fixed prices,
subject to limited exceptions.

Business Strategies

Our primary business objective is to increase our distributable cash flow per unit by executing the following strategies:



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Principal Executive Offices

Our principal executive offices are located at 399 Thornall Street, 8th Floor, Edison, New Jersey 08837, and our phone number is
(732) 635-1500.

We
were formed to own and operate the long-haul coastwise marine transportation business conducted by United States Shipping Master LLC (along with its subsidiaries,
"Shipping Master LLC"). On November 3, 2004 Shipping Master LLC contributed substantially all its assets and liabilities constituting its business to us in connection with our initial public
offering of common units representing limited partnership interests. In exchange for these assets and liabilities, Shipping Master LLC received 899,968 common units and 6,899,968 subordinated units
(of which 5,272,341 were classified as Class A subordinated units and 1,627,627 were classified as Class B subordinated units) representing limited partnership interests in us. Our
general partner, which is wholly-owned by Shipping Master LLC, received a 2% general partner interest and certain incentive distribution rights. We redeemed the 899,968 common units owned by Shipping
Master LLC upon exercise of the underwriters' over-allotment in connection with our initial public offering.

OVERVIEW OF OUR INDUSTRY

Introduction

We participate in the U.S. flag coastwise long-haul marine transportation of refined petroleum, petrochemical and commodity chemical products.
Coastwise marine transportation of bulk liquids is primarily performed by tank vessels, including deep-sea self propelled vessels, integrated tug barges, or ITBs, articulated tug barges,
or ATBs, and unmanned tank barges. U.S. flag tank vessels generally transport products between ports in the continental United States (including through the Panama Canal) or between mainland ports and
Puerto Rico, Alaska or Hawaii, although these vessels may at times transport products internationally. Tank vessels provide a vital link in the transportation of these products in the United States.

Tank
vessels transport refined petroleum products, such as gasoline, jet fuel, diesel fuel and feedstocks, from refineries to terminals and facilities engaged in further processing,
often in full vessel loads. Tank vessels with a relatively high number of tank segregations, called parcel tankers, transport smaller cargoes of specialty refined petroleum, petrochemicals and
commodity chemicals, such as lubricants, styrene, glycols, paraxylene, caustic soda and alcohols, in a variety of coastwise distributive and balancing movements.

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The
U.S. flag coastwise marine transportation industry operates under the Jones Act (Merchant Marine Act of 1920), a set of Federal statutes that mandate that vessels engaged in trade
between U.S. ports must:



One
of the primary purposes of the Jones Act is to maintain a fleet of vessels eligible for charter to the U.S. government for national defense requirements.

Methods of Transporting Refined Petroleum, Petrochemical and Commodity Chemical Products

Refined petroleum products are transported by pipelines, marine transportation, truck and railroads. Pipelines are the most efficient mode of transportation for
long-haul movement of refined petroleum products, followed by tank vessels. Rail and truck transportation of these products are more cost-effective only over short distances
and, therefore, they account for only a small percentage of total ton miles transported. The carrying capacity of a 30,000 deadweight ton (dwt) tank vessel, which can transport approximately 225,000
barrels of refined petroleum products, is equivalent to approximately 378 average-size rail tank cars and approximately 945 average-size tractor trailer tank trucks. Marine
transportation provides a vital link between a number of major refined petroleum product producing and consuming regions of the United States. There are no pipelines connecting the major refining
areas in the Pacific Northwest and the Texas and Louisiana region with consumption markets in California, or connecting the major refining areas in the Texas and Louisiana region to the consuming
areas in Florida. The Northeastern United States, a significant consuming region, is served by capacity-constrained pipelines connecting with the refining areas in Texas and Louisiana.

Petrochemical
and commodity chemical products are typically produced and moved in volumes considerably smaller than the capacity of an entire tank vessel. As pipelines cannot
economically transport most petrochemical and commodity chemical products, most of these products are transported by rail, as the smaller unit sizes of railcars are conducive to typical shipment
sizes. Parcel tankers, with multiple cargo compartments and cargo handling systems, can cost-effectively transport these products because they can accommodate the small shipment sizes
without having a portion of the vessel capacity unfilled.

Industry Trends

We believe the following industry trends, which are causing charter rates to rise and companies to seek longer term charters, create a positive outlook for our
business:



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Our Vessels

Integrated Tug Barge Unit Fleet

In September 2002, we acquired a fleet of six refined petroleum product ITBs built in the United States in the mid-1980s and qualified for the
coastwise trade. ITBs integrate a dedicated tugboat (which provides propulsion) into a cargo carrying barge using a coupling system that connects the two vessels.

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The
rigid connection between the vessels enables the tug barge combination to be handled as though it were a single vessel, with better handling and maneuverability than a conventional tug and barge
combination. Unlike self-propelled tankers, ITBs are designed to allow the aft section, containing the more complex controls and machinery, to be separated from the forebody cargo area.
The tug and barge sections are locked together and are only separated during scheduled drydockings every five years. ITBs provide a major cost advantage compared to a tanker because ITBs require fewer
crew members than tankers. Additionally, ITBs can operate in sea and weather conditions that conventional tug-barge combinations cannot.

All
six ITBs are "sister vessels" of the same design and built to the same specifications. As sister vessels, we can operate them more efficiently because we can use common procedures
with all the ITBs, while inventory management can be centralized and crews and officers can be interchanged
among vessels. In addition, sister vessels allow us to substitute vessels in service and service the same contract with different vessels.

The
following table sets forth the specifications and highlights for our six ITBs:

Deadweight capacity(1)

48,000 dwt/360,000 bblsService speed

14.0 knotsFull load draft (summer)

40.563 feetHull structure

Double-bottomPropulsion type

2x DeLaval Medium Speed DieselFuel consumption (at sea)

42 long tons of marine diesel oil/dayNumber of cargo segregations

7 different types of refined products(2)Classification

American Bureau of Shipping A1 (all six vessels)(3)


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Double-bottom
ship configurations are superior to single-hull configuration for the prevention of oil spills in the event of a grounding. As a result, charterers prefer
double-bottom ships to conventional single-hull ships. Because the ITBs have two independent propulsion plants and are equipped with dual propellers and rudders, the risk of mechanical
failure and unscheduled downtime for this fleet is lessened. We can perform engine maintenance at sea while the vessel is operating on the other engine.

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The following table summarizes information about our ITBs:

|Vessel       |  | Current Trade Route                   |  | Month/Year
Built |  | OPA 90 Retrofit/
Phase-out Date
|------------ |  | ------------------------------------- |  | ---------------- |  | -------------------------------
|JACKSONVILLE |  | Spot (generally U.S. coastwise trade) |  | May 1982         |  | May 2012                       
|GROTON       |  | West Coast: Washington to California  |  | June 1982        |  | June 2012                      
|NEW YORK     |  | East Coast: Texas to Florida          |  | February 1983    |  | February 2013                  
|BALTIMORE    |  | West Coast: Washington to California  |  | May 1983         |  | May 2013                       
|PHILADELPHIA |  | East Coast: Louisiana to Florida      |  | June 1984        |  | June 2014                      
|MOBILE       |  | Spot (generally U.S. coastwise trade) |  | August 1984      |  | August 2014                    

Four
of our ITBs are currently operating under charters with BP (2 vessels), Hess and Shell. Each of these charters had an initial term of two to three years. One charter expires in
September 2005, one expires in January 2006 and the remaining two expire in November and December 2006. The remaining two ITBs are currently operating in the spot market under
voyage charters; however, regardless of rates in the spot market, we are assured specified minimum rates for these vessels through September 13, 2007 under the Hess support agreement, subject
to certain limited exceptions. Although our ITBs principally transport refined petroleum products, we will on occasion transport crude oil if requested by a customer.

The
ITBs are required by both domestic (United States Coast Guard) and international (International Maritime Organization) regulatory bodies to be overhauled for major repair and
maintenance every five years. During a drydocking an ITB is removed from service (typically for 45-55 days) and major repair and maintenance work is carried out. We currently
estimate typical drydock costs for our ITBs will be approximately $4.0 million to $6.0 million per vessel for work occurring in U.S. shipyards. We can also drydock the ITBs in foreign
shipyards, where the drydocking costs are lower. However, if we choose to drydock an ITB in a foreign shipyard, the ITB may be off-hire, and therefore not earning any revenue, for a longer
period of time as it travels to and from the foreign shipyard if we cannot find a cargo to transport during that voyage. Drydocking costs are considered maintenance capital expenditures but are
expensed immediately for tax purposes. In addition to drydocking each ITB every five years, we are required to conduct a mid-period underwater survey in lieu of drydocking the ITB for
inspection. An underwater survey only requires an ITB to be removed from service for three to five days.

The
following table sets forth information regarding the drydocking of our ITBs:

|Vessel       |  | Last
Drydock |  | Costs
(in thousands) |       | Days
Off-Hire |    | Next
Scheduled
Drydock |         | Estimated Days
Off-Hire (2)
|------------ |  | ------------ |  | -------------------- | ----- | ------------- | -- | ---------------------- | ------- | ---------------------------
|JACKSONVILLE |  | 2000         |  | $                    | 3,023 |               | 45 |                        | 4Q 2005 |                            
|GROTON(1)    |  | 2001         |  |                      | 2,449 |               | 90 |                        | 2006    |                            
|NEW YORK     |  | 2000         |  |                      | 3,054 |               | 46 |                        | 3Q 2005 |                            
|BALTIMORE    |  | 2002         |  |                      | 5,888 |               | 51 |                        | 2007    |                            
|PHILADELPHIA |  | 2002         |  |                      | 4,705 |               | 64 |                        | 2007    |                            
|MOBILE       |  | 2001         |  |                      | 3,743 |               | 49 |                        | 2006    |                            

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Prior
to their respective stipulated OPA 90 phase-out dates, we plan to extend the life of each of our ITBs by retrofitting them with an internal double-hull or
by building new forebodies similar to the existing forebodies that have a fully compliant double-hull. A retrofit would involve installing double-sides internally in the existing forebody,
rearranging ballast tanks and installing coating systems to protect all newly installed steel surfaces. This retrofit will result in a fully conforming double-hull vessel since the
existing double-bottom of the ITB is fully conforming; however, the capacity of the vessel will decrease by approximately 5%. We estimate the current cost of this retrofit to be approximately
$25 million per vessel, and will require an off-hire period of approximately 120 days if performed in a U.S. shipyard.

In
order to bring our ITBs into compliance with OPA 90, at a minimum we will be required to retrofit each ITB with double-sides. We may elect to construct new double-hulled forebodies
for some or all of our vessels instead of retrofitting them with double-sides. This forebody will be built substantially in accordance with the design of the existing forebody, with selected upgrades
of cargo systems and other modifications to equip these units with state-of-the-art technology. This new forebody can be constructed while the existing ITB
continues to operate, requiring an off-hire period of approximately 60 days to join the new forebody to the existing tug and to conduct sea trials. We estimate the current cost of
constructing a new forebody to be $55 million per vessel. We will base our final decision on whether to retrofit or to construct forebodies on the cost of shipyard work for each alternative at
the time it is undertaken, market conditions, charter rates, the availability and cost of financing and other customary factors governing investment decisions. We believe that either option will be
fully acceptable to our customers given the precedent of retrofitted double-hulls that have already occurred and are trading in the Jones Act.

Hess Support Agreement.In connection with our purchase of the six ITBs from Hess, we entered into a support agreement with
Hess that provides, among other things:



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For
the period from September 13, 2002 to December 31, 2002, the operation of two ITBs was covered by the support agreement. For the years ended December 31, 2004
and 2003, five and four ITBs, respectively, were covered. One ITB is under contract with Hess at a charter rate less than the support rate; this vessel will be covered by the support agreement upon
any termination of that contract.

Parcel Tanker Fleet

Our parcel tankers carry specialty refined petroleum, petrochemical and commodity chemical products primarily from refineries and chemical manufacturing plants
and storage tank facilities along the coast of the U.S. Gulf of Mexico to industrial users in and around East Coast ports. The specialty refined petroleum products transported on our parcel tankers
are generally not the types of refined

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petroleum
products transported by our ITBs but are products shipped in smaller volumes and used primarily in the manufacture of other products. Petrochemical and commodity chemical products
transported by our parcel tankers consist primarily of paraxylene, caustic soda, alcohol, chlorinated solvents, alkylates, toluene and ethylene glycol.

Because
of the smaller cargo lot size requirements, parcel tankers are designed with many small cargo tanks. Unlike conventional tankers, parcel tankers are typically designed with one
dedicated cargo pump, and associated piping system, for each tank, in order to eliminate cargo contamination. Some of the specialty refined petroleum, petrochemical and commodity chemical products
transported must be carried in vessels with specially coated or stainless steel cargos tanks, as many of these cargos are very sensitive to contamination and require special cargo handling equipment.

We
currently operate two parcel tankers: theChemical Pioneer, which we acquired from Dow Chemical in May 2003, and the Charleston, which we acquired
from ExxonMobil in April 2004. The following table sets forth the specifications and highlights of our parcel
tankers:

|                             |  | CHARLESTON                     |  | CHEMICAL PIONEER                  
|---------------------------- |  | ------------------------------ |  | ----------------------------------
|Deadweight capacity(1)       |  | 48,000 dwt                     |  | 35,000 dwt                        
|Service speed                |  | 16.0 knots                     |  | 16.0 knots                        
|Full load draft (summer)     |  | 42.000 feet                    |  | 35.656 feet                       
|Hull structure               |  | Double-bottom                  |  | Double-hull
(non-OPA 90 compliant)
|Propulsion type              |  | Low-speed diesel               |  | Steam turbine                     
|Fuel consumption (at sea)    |  | 52 MT/Day (IFO 180)            |  | 75 MT/Day (IFO 380)               
|Number of cargo segregations |  | 43 different types of products |  | 48 different types of products    
|Classification(2)            |  | American Bureau of Shipping A1 |  | American Bureau of Shipping A1    
|Condition Assessment(3)      |  | CAP I                          |  | CAP II                            

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The Chemical Pioneerand theCharlestonare among the last independently owned carriers
scheduled to be retired under OPA 90, with phase-out dates in 2013. Although theChemical Pioneeris double-hulled, it is not OPA 90
compliant; however, we believe that a minor modification will bring theChemical Pioneerinto compliance with OPA 90. The Charlestonis not OPA 90
compliant; however, we believe we will be able to obtain a waiver allowing us to carry refined petroleum products in the
vessel's center tanks and non-petroleum-based products in the other tanks. Alternatively,
since tankers carrying products or chemicals not regulated by OPA 90 (i.e., non-petroleum-based) are not subject to the mandated OPA 90
phase-out dates and, therefore, have extended trading lives, we may elect to change the operation of the parcel tankers to avoid having to retrofit them or phase them out. However, this
change could materially adversely affect their value to us.

Both
theChemical Pioneerand theCharlestonhave over 40 cargo segregations, which are
configured, strengthened and coated to handle various sized parcels of a wide variety of petroleum products and industrial chemicals, giving them the ability to handle a broader range of specialty
refined petroleum, petrochemical and commodity chemical products than other chemical-capable product carriers. These vessels also have specialized tank cleaning machines. Many of the petroleum and

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chemical
products we transport in our parcel tankers are hazardous substances and therefore require highly qualified management and crew to operate the vessel safely.

Current
voyages for our parcel tankers are generally conducted from the Houston and Corpus Christi, Texas and Lake Charles, Louisiana areas to such ports as New York, New York,
Philadelphia, Pennsylvania, Baltimore, Maryland, Wilmington, North Carolina and Charleston, South Carolina.

We
currently have contracts of affreightment with Dow Chemical, ExxonMobil, Koch Industries, Lyondell Chemical and Shell with specified minimum cargo requirements that will, in
aggregate, account for approximately 74% of the anticipated usable capacity of theCharlestonthrough July 2007 and 75% of the anticipated usable
capacity of theChemical Pioneerthrough February 2007. In addition, these contracts generally require the customer to ship excess volume of the
products covered by the contract on the routes covered by the contract on our parcel tankers. As a result, we expect these companies will account for substantially all of the non-committed
capacity of these vessels during those periods. When we acquired theCharlestonfrom ExxonMobil in May 2004, we agreed to transport cargo for
ExxonMobil generally transported by theS/R Wilmingtonwhile such vessel was in drydock. We operated under this arrangement from June 2004
through November 2004 and chartered in another vessel on a short-term basis to fulfill our obligations under our charter agreements covering the Charleston. We are obligated to use our best efforts
to cover all of ExxonMobil's cargo transportation requirements that would have been covered by the S/R Wilmingtonduring future drydocks of that vessel.

TheCharlestonis currently and is expected to continue to transport specialty refined petroleum products and related products that
generally generate qualifying income for federal income tax purposes. We are operating theChemical Pioneerin a corporate subsidiary because it
primarily will conduct operations that do not generate qualifying income. Dividends received from our corporate subsidiary will generate qualifying income. Section 7704 of the Internal Revenue
Code provides that publicly traded partnerships will, as a general rule, be taxed as corporations. However, an exception, referred to as the "Qualifying Income Exception," exists with respect to
publicly traded partnerships of which 90% or more of the gross income for every taxable year consists of "qualifying income."
Qualifying income includes income and gains derived from the transportation, storage and processing of crude oil, natural gas and products thereof. Other types of qualifying income include interest
(other than from a financial business), dividends, gains from the sale of real property and gains from the sale or other disposition of capital assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 3% of our current income is not qualifying income; however, this estimate could change from time to time. We estimate at least 90% of our
current gross income constitutes qualifying income.

Our
parcel tankers are required by both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies to be drydocked twice in a five year period.
During a drydocking the vessel is removed from service (typically for 35 to 50 days) and major repair and maintenance work is carried out. We currently estimate typical drydock costs to be
$3.0 million to $5.0 million per vessel for work occurring in U.S. shipyards. Drydocking costs are considered maintenance capital expenditures but are expensed immediately for tax
purposes.

|Vessel              |  | Last
Drydock |  | Costs |        | Days
Off-Hire |     | Next
Drydock
|------------------- |  | ------------ |  | ----- | ------ | ------------- | --- | ------------
|
|Charleston(1)       |  | 2003         |  | $     | 1,500  |               | 65  |             
|Chemical Pioneer(2) |  | 2003         |  | $     | 12,448 |               | 122 |             

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Articulated Tug Barge Unit

ATB's, similar to ITBs, consist of a tugboat (which provides propulsion) and a cargo carrying barge using a coupling system that connects the two vessels. Unlike
the rigid connection found on ITBs, an ATB uses a hinged connection. The ATB's configuration offers crewing cost advantages similar to those of an ITB. In addition, ATBs offer the additional advantage
of substitutability, because the barge and tug may be decoupled. This offers operational and commercial flexibility, allowing the barge unit to be towed by a third party tug in certain situations.
ATBs are substantially cheaper to construct than a new tanker.

In
August 2004, we signed a contract with Southeastern New England Marine Corporation, or Senesco, for construction of a 19,999 ton ATB to be delivered in early 2006. This design
will enable us to offer our customers a high degree of flexibility in carrying cargos of different grades simultaneously.

The
contract price for the ATB is $45.4 million, including $0.5 million of Partnership supervision costs, to be paid in installments over the construction period of
approximately 18 months. The barge will be constructed at Senesco's shipyard at Quonset Point, Rhode Island. Pursuant to the terms of the contract, we have options, exercisable for a period of
two years, to build three additional ATBs under the same terms and conditions at fixed prices, subject to specified price increases and increases resulting from changes in specifications and component
prices. If we do not exercise any of the options, we must pay the shipyard an additional $375,000, and if we exercise the option only for one additional ATB, we must pay the shipyard $125,000.

The
following table sets forth the specifications and highlights for our ATB currently under construction:

|Deadweight capacity(1)       |  | 19,999 dwt / 140,000 bbl                                 
|---------------------------- |  | ---------------------------------------------------------
|Service speed                |  | 13.5 knots                                               
|Full load draft (summer)     |  | 29"0"                                                    
|Hull structure               |  | Double-hull                                              
|Propulsion type              |  | Twin medium speed diesel burning heavy fuel oil (IFO 180)
|Fuel consumption (at sea)    |  | 38 tons/day                                              
|Number of cargo segregations |  | 10                                                       
|Classification               |  | Tug: ABS A1
Barge: ABS A1                                

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We
have entered into contracts of affreightment to transport commodity chemical products whose specified minimum volumes will utilize 77% of our ATB's anticipated capacity through
September 2007 and approximately 67% of the ATB's anticipated capacity thereafter through June 2010. In addition, these contracts generally require the customer to ship excess volume of
the products covered by the contract on the routes covered by the contract on our ATB. As a result, we expect these companies will account for substantially all of the non-committed
capacity of this vessel during the term of the contract. We currently intend to secure long-term contracts of affreightment for any additional ATBs constructed pursuant to exercise of the
options contained in the contract with Senesco.

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The contracts of affreightment we have for our ATB under construction cover products that generally do not generate qualifying income for federal income tax purposes. As a result, we
anticipate this ATB will be owned by our corporate subsidiary because it primarily will conduct operations that do not generate qualifying income.

Our Customers

Our three largest customers in 2004 and 2003 based on gross revenue were BP, Hess and Shell, each of which accounted for more than 12% of our consolidated
revenues for those periods. No other customer accounted for more than 10% of our consolidated revenues for those periods. See note 3 to the consolidated financial statements in Item 8 of this
report.

Preventative Maintenance

We have a computerized preventative maintenance program that tracks U.S. Coast Guard and American Bureau of Shipping inspection schedules and establishes a system
for the reporting and handling of routine maintenance and repair.

Vessel
captains submit monthly inspection reports, which are used to note conditions that may require maintenance or repair. Vessel superintendents are responsible for reviewing these
reports, inspecting identified discrepancies, assigning a priority classification and generating work orders. Work orders establish job type, assign personnel responsible for the task and record
target start and completion dates. Vessel superintendents inspect repairs completed by the crew, supervise outside contractors as needed and conduct quarterly inspections following the same criteria
as the captains. Drills and training exercises are conducted in conjunction with these inspections, which are typically more comprehensive in scope. In addition, an operations duty officer is
available on a 24-hour basis to handle any operational issues. The operations duty officer is prepared to respond on scene whenever required and is trained in technical repair issues,
spill control and emergency response.

The
American Bureau of Shipping and the U.S. Coast Guard establish drydocking schedules. Prior to sending a vessel to a shipyard, we develop comprehensive work lists to ensure all
required maintenance is completed. Repair facilities bid on these work lists, and jobs are awarded based on price and time to
complete. Vessels then report to a cleaning facility to prepare for the shipyard. Once the vessel is gas-free, a certified marine chemist issues paperwork certifying that no dangerous
vapors are present. The vessel proceeds to the shipyard where the vessel superintendent and certain crew members assist in performing the maintenance and repair work. The planned maintenance period is
considered complete when all work has been tested to the satisfaction of American Bureau of Shipping or U.S. Coast Guard inspectors or both.

Safety

General

We are committed to operating our vessels in a manner that protects the safety and health of our employees, the general public and the environment. Our primary
goal is to minimize the number of safety- and health-related accidents on our vessels and our property. We are focused on avoiding personal injuries and reducing occupational health hazards. We seek
to prevent accidents that may cause damage to our personnel, equipment or the environment such as fire, collisions, petroleum spills and groundings of our vessels. In addition, we are committed to
reduce overall emissions and waste generation from our operations and to the safe management of associated cargo residues and cleaning wastes.

Our
policy is to follow all laws and regulations as required, and we are actively participating with government, trade organizations and the public in creating responsible laws,
regulations and standards

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to
safeguard the workplace, the community and the environment. Our operations department is responsible for coordinating all facets of our health, safety and training programs. The operations
department identifies areas that may require special emphasis, including new initiatives that evolve within the industry. Supervisors are responsible for carrying out and monitoring compliance for all
of the safety and health policies on their vessels.

Tank Barge Characteristics

To protect the environment, today's tank barge hulls are required not only to be leakproof into the body of water in which they float but also to be vapor-tight
to prevent the release of any fumes or vapors into the atmosphere. Our tank barges that carry clean products such as gasoline or naphtha have alarms that indicate when the tank is full (95% of
capacity) and when it is overfull (98% of capacity). Each tank barge also has a vapor recovery system that connects the cargo tanks to the shore terminal via pipe and hose to return to the plant the
vapors generated while loading.

Safety Management Systems

We are currently certified under the standards of the International Safety Management, or ISM, system. The ISM standards were promulgated by the International
Maritime Organization, or IMO, several years ago and have been adopted through treaty by many IMO member countries, including the United States. Although ISM is not required for coastal tug and barge
operations, we have determined that an integrated safety management system, including the ISM standards, will promote safer operations and will provide us with necessary operational flexibility as we
continue to grow. We have been awarded ISO 9001 Quality Management System certification as well as ISO 14001 Environmental Management System certification. These standards are part of a series of
standards established by the International Organization for Standardization. ISO 9001 is one of a series of quality management system standards, while ISO 14001 is one of a series of standards
relating to the environment and its protection.

Ship Management, Crewing and Employees

We maintain an experienced and highly qualified work force of shore-based and seagoing personnel. As of March 1, 2005, we employed approximately 330
persons, comprised of approximately 30 shore staff and approximately 300 fleet personnel. We have a collective bargaining agreement in place with two maritime unions, the American Maritime Officers
union, which covers the 134 officers of our vessels, and the Seafarers' International Union, which covers all our other seagoing personnel, that expire in 2007. Under the terms of the collective
bargaining agreements, we are required to make contributions to pension and other welfare programs managed by the unions. Management believes there are no unfunded pension liabilities under any of
these agreements. Our vessel employees are paid on a daily or hourly basis and typically work 60 days on and 60 days off, in the case of officers, and 120 days on and
60 days off, in the case of all other seagoing personnel. Our shore-based personnel are generally salaried and are primarily located at our headquarters in Edison, New Jersey.

Our
shore staff provides support for all aspects of our fleet and business operations, including sales and scheduling, crewing and human resources functions, engineering, compliance and
technical management, financial and insurance services.

Our
crews regularly inspect each vessel, both at sea and in port, and perform most of the ordinary course maintenance. Our procedures call for a member of our shore-based staff to
inspect each vessel at least once each fiscal quarter, making specific notations and recommendations regarding the overall condition of the vessel, maintenance, safety and crew welfare. In addition,
our fleet is inspected annually by independent safety consultants and regularly vetted by our customers.

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Classification, Inspection and Certification

In accordance with standard industry practice, all of our coastwise vessels have been certified as being "in class" by the American Bureau of Shipping. The
American Bureau of Shipping is one of several internationally recognized classification societies that inspect vessels at regularly scheduled intervals to ensure compliance with American Bureau of
Shipping classification rules and some applicable federal safety regulations. Most insurance underwriters require an "in class" certification by a classification society before they will extend
coverage to any vessel. The classification society certifies that the pertinent vessel has been built and maintained in accordance with the rules of the society and complies with applicable rules and
regulations of the country of registry of such vessel and the international conventions of which that country is a member. Inspections of our ITBs are conducted by a surveyor of the classification
society in three surveys of varying frequency and thoroughness: annual surveys each year, an intermediate survey every two to three years, which is generally conducted through an underwater survey,
and a special survey every five years. As part of an intermediate survey, our vessels may be required to be drydocked every 24 to 30 months for inspection of the underwater parts of such vessel
and for any necessary repair work related to such inspection. Inspections of our parcel tankers are conducted by a surveyor of the classification society annually as well as when the vessel is
drydocked, which must occur twice every five years.

Our
vessels are inspected at periodic intervals by the U.S. Coast Guard to ensure compliance with applicable safety regulations issued by the U.S. Coast Guard. All of our tank vessels
carry Certificates of Inspection issued by the U.S. Coast Guard.

Our
vessels are also inspected and audited periodically by our customers, in some cases as a precondition to chartering our vessels. We maintain all necessary approvals required for our
vessels to operate in their normal trades. We believe that the high quality of our vessels, our crews and our shoreside staff are advantages when competing against other vessel operators for
long-term business.

Insurance Program

We believe that we have arranged for adequate insurance coverage to protect against the accident-related risks involved in the conduct of our business and risks
of liability for environmental damage and pollution, consistent with industry practice. We cannot assure you, however, that all risks are adequately insured against, that any particular claims will be
paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future.

Our
hull and machinery insurance covers risks of actual or constructive loss from collision, fire, grounding, engine breakdown and other casualties up to an agreed value per vessel. Our
war-risks insurance covers risks of confiscation, seizure, capture, vandalism, sabotage and other war-related risks. While some tank vessel owners and operators obtain
loss-of-hire insurance covering the loss of revenue during extended tank vessel off-hire periods, we, along with several other tank vessel operators, do not have
this type of coverage. We believe that, given our diversified marine transportation operations and high utilization rate, this type of coverage is not economical and is of limited value to us.
However, we evaluate the need for such coverage on an ongoing basis taking into account insurance market conditions and the employment of our vessels.

Our
protection and indemnity insurance covers third-party liabilities and other related expenses from, among other things, injury or death of crew, passengers and other third parties,
claims arising from collisions, damage to cargo, damage to third-party property, asbestos exposure and pollution arising from oil or other substances. Our current protection and indemnity insurance
coverage for pollution is $1 billion per incident and is provided by United Kingdom P&I Club, which is a member of the International Group of protection and indemnity mutual assurance
associations. The 17 protection and indemnity associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to
reinsure each association's

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liabilities.
Each protection and indemnity association has capped its exposure to this pooling agreement at approximately $4.3 billion per non-pollution incident. As a member of UK
P&I Club, we are subject to calls payable to the associations based on our claims records, as well as the claim records of all other members of the individual associations and members of UK P&I Club.

We
are not currently the subject of any claims alleging exposure to contaminants, although such claims may be brought in the future. In connection with our purchase of the six ITBs from
Hess, we and Hess agreed that we would share liability for any claims by employees for exposure to contaminants including, without limitation, polychlorinated biphenyls, asbestos and radioactive
substances, or working conditions on the vessels, based on the number of days such employee worked for Hess compared to the number of days such employee worked for us. If, notwithstanding the
foregoing, we had to pay
claims solely out of our own funds, it could have a material adverse effect on our financial condition. Furthermore, any claims covered by insurance would be subject to deductibles, and since it is
possible that a large number of claims could be brought, the aggregate amount of these deductibles could be material.

We
may not be able to obtain insurance coverage in the future to cover all risks inherent in our business, and insurance, if available, may be at rates that we do not consider
commercially reasonable. In addition, as more single-hull vessels are retired from active service, insurers may be less willing to insure and customers less willing to hire
single-hull vessels.

Competition

The Jones Act restricts U.S. point-to-point maritime shipping to vessels operating under the U.S. flag, built in the United States, at
least 75% owned and operated by U.S. citizens and manned by U.S. crews. In our market areas, our primary direct competitors are the operators of U.S. flag ocean-going tank vessels and U.S. flag parcel
tankers, including the captive fleets of major oil and chemical companies. The domestic tank vessel industry is highly competitive.

In
the spot charter markets, our vessels compete with all other vessels of a size and type required by a charterer that can be available at the date specified. In the
longer-term charter market, competition is based primarily on price and availability, although we believe charterers have become more selective with respect to the quality of vessels they
hire, with particular emphasis on factors such as age, double-hulls or double-bottoms and the reliability and quality of operations. We believe major oil and chemical companies are increasingly
demonstrating a preference for modern vessels based on concerns about the environmental risks associated with older vessels. Consequently, we believe that owners of large relatively modern fleets such
as ours have been able to gain a competitive advantage over owners of older fleets.

U.S.
flag tank vessels also compete with petroleum product pipelines and are affected by the level of imports on foreign flag products carriers. Because the existing U.S. pipeline
network offers a low cost method of transporting oil and refined petroleum products, it is capacity constrained in many markets. We believe that high capital costs, tariff regulation and environmental
considerations make it unlikely that a new refined product pipeline system will be built in our market areas in the near future. It is possible, however, that new pipeline segments, including pipeline
segments that connect with existing pipeline systems, could be built or that existing pipelines could be expanded or converted to carry refined petroleum products. Either of these occurrences could
have an adverse effect on our ability to compete in particular locations.

While
a substantial majority of all long-haul shipments of chemicals in the United States are by rail, Wilson Gillette estimates approximately 5% are transported in the
coastwise trade by tank vessels, and we believe this percentage would be higher if more Jones Act qualified parcel tankers were available. We believe that the cost to ship by rail is significantly
higher than shipping by tanker, even when inventory and logistics costs are factored in. Wilson Gillette believes that this lower cost and the

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availability
of vessels with many tank segregations that allow smaller quantities of product to be carried will increase the demand for tanker transportation of chemicals.

Regulation

Our operations are subject to significant federal, state and local regulation, the principal provisions of which are described below.

Environmental

General.Government regulation significantly affects the ownership and operation of our tank vessels. Our tank vessels are
subject to international conventions, federal, state and local laws and regulations relating to safety and health and environmental protection, including the generation, storage, handling, emission,
transportation and discharge of hazardous and non-hazardous materials. Although we believe that we are in substantial compliance with applicable environmental laws and regulations, we
cannot predict the ultimate cost of complying with these requirements, or the impact of these requirements on the resale value or useful lives of our tank vessels. The recent trend in environmental
legislation is toward more stringent requirements, and this trend will likely continue. In addition, a future serious marine incident occurring in U.S. waters or internationally that results in
significant oil pollution or causes significant environmental impact could result in additional legislation or regulation that could adversely affect our ability to pay cash distributions.

Various
governmental and quasi-governmental agencies require us to obtain permits, licenses and certificates for the operation of our tank vessels. While we believe that we are in
substantial compliance with applicable environmental laws and regulations and have all permits, licenses and certificates necessary for the conduct of our operations, frequently changing and
increasingly stricter requirements, future non-compliance or failure to maintain necessary permits or
approvals could require us to incur substantial costs or temporarily suspend operation of one or more of our tank vessels.

We
maintain operating standards for all our tank vessels that emphasize operational safety, quality maintenance, continuous training of our crews and officers, care for the environment
and compliance with U.S. regulations. Our tank vessels are subject to both scheduled and unscheduled inspections by a variety of governmental and private entities, each of which may have unique
requirements. These entities include the local port authorities (U.S. Coast Guard or other port state control authorities), classification societies, flag state administration and charterers,
particularly terminal operators and oil companies.

We
manage our exposure to losses from potential discharges of pollutants through the use of well maintained, well managed and well equipped vessels and safety and environmental programs,
including a maritime compliance program and our insurance program. Moreover, we believe we will be able to accommodate reasonably foreseeable environmental regulatory changes. However, the risks of
substantial costs, liabilities and penalties are inherent in marine operations, including potential criminal prosecution and civil penalties for negligent or intentional discharge of pollutants. As a
result, there can be no assurance that any new regulations or requirements or any discharge of pollutants by us will not have a material adverse effect on us.

The Oil Pollution Act of 1990.The Oil Pollution Act of 1990, or OPA 90, established an extensive regulatory and liability
regime for the protection of the environment from oil spills. OPA 90 affects all vessels trading in U.S. waters, including the exclusive economic zone extending 200 miles seaward. OPA 90 sets forth
various technical and operating requirements for tank vessels operating in U.S. waters. In general, all newly-built or converted tankers carrying crude oil and petroleum-based products in U.S. waters
must be built with double-hulls. Existing single-hull, double-sided and double-bottomed tank vessels are to be phased out of service between 1995 and 2015 based on their tonnage and age.
Under

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the
phase-out schedule, two of our six ITBs will be precluded from transporting petroleum and petroleum-based products in the United States by May and June, 2012, an additional two ITBs
and theChemical Pioneerand theCharlestonmust be phased out of transporting petroleum and
petroleum-based products by each of February, March, September and October 2013 and the remaining two ITBs must be phased out of service by June and August, 2014. In order to bring our ITBs
into compliance with OPA 90, at a minimum we will be required to retrofit each ITB with double sides. Although theCharlestonis not OPA 90 compliant,
we believe we will be able to obtain a waiver allowing us to carry refined petroleum products in the vessel's center tanks and non-petroleum-based products in the other tanks. Although the Chemical Pioneeris double-hulled, it is not OPA 90 compliant; however, we believe that a minor modification, that must be made by its mandatory
phase-out date in 2013, will bring theChemical Pioneerinto compliance with OPA 90.

Under
OPA 90, owners or operators of tank vessels operating in U.S. waters must file vessel spill response plans with the U.S. Coast Guard and operate in compliance with the plans. These
vessel response plans must, among other things:



Our
vessel response plans have been accepted by the U.S. Coast Guard, and all of our vessel crew members and spill management team personnel have been trained to comply with these
guidelines. In addition, we conduct regular oil-spill response drills in accordance with the guidelines set out in OPA 90. We believe that all of our tank vessels are in substantial
compliance with OPA 90.

Environmental Spill and Release Liability.OPA 90 and various state laws substantially increased over historic levels the
statutory liability of owners and operators of vessels for the discharge or substantial threat of a discharge of oil and the resulting damages, both regarding the limits of liability and the scope of
damages. OPA 90 imposes joint and several strict liability on responsible parties, including owners, operators and bareboat charterers, for all oil spill and containment and clean-up costs
and other damages arising from spills attributable to their vessels. A complete defense is available only when the responsible party establishes that it exercised due care and took precautions against
foreseeable acts or omissions of third parties and when the spill is caused solely by an act of God, act of war (including civil war and insurrection) or a third party other than an employee or agent
or party in a contractual relationship with the responsible party. These limited defenses may be lost if the responsible party fails to report the incident or reasonably cooperate with the appropriate
authorities or refuses to comply with an order concerning clean-up activities. Even if the spill is caused solely by a third party, the owner or operator must pay removal costs and damage
claims and then seek reimbursement from the third party or the trust fund established under OPA 90. Finally, in certain circumstances involving oil spills from tank vessels, OPA 90 and other
environmental laws may impose criminal liability on personnel and/or the corporate entity.

OPA
90 limits the liability of each responsible party for a tank vessel to the greater of $1,200 per gross registered ton or $10 million per discharge. This limit does not apply
where, among other things, the spill is caused by gross negligence or willful misconduct of, or a violation of an applicable federal
safety, construction or operating regulation by, a responsible party or its agent or employee or any person acting in a contractual relationship with a responsible party.

In
addition to removal costs, OPA 90 provides for recovery of damages, including:



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OPA
90 expanded the pre-existing financial responsibility requirements for tank vessels operating in U.S. waters and requires owners and operators of tank vessels to
establish and maintain with the U.S. Coast Guard evidence of their financial responsibility sufficient to meet their potential liabilities imposed by OPA 90. Under the regulations, we may provide
evidence of insurance, a surety bond, a guarantee, letter of credit, qualification as a self-insurer or other evidence of financial responsibility. We have provided evidence of insurance
under the regulations and have
received certificates of financial responsibility from the U.S. Coast Guard for all of our tank vessels subject to this requirement.

OPA
90 expressly provides that individual states are entitled to enforce their own pollution liability laws, even if inconsistent with or imposing greater liability than OPA 90. There is
no uniform liability scheme among the states. Some states have OPA 90-like schemes for limiting liability to various amounts, some rely on common law fault-based remedies and others impose
strict and/or unlimited liability on an owner or operator. Virtually all coastal states have enacted their own pollution prevention, liability and response laws, whether statutory or through court
decisions, with many providing for some form of unlimited liability. We believe that the liability provisions of OPA 90 and similar state laws have greatly expanded potential liability in the event of
an oil spill, even where we are not at fault. Some states have also established their own requirements for financial responsibility. However, in March 2000, the U.S. Supreme Court decided United States v.
Locke. In that case, INTERTANKO challenged tank vessel regulations enacted by the State of Washington. The Court struck down several
regulations and remanded the case for review of additional regulations. The Court held that the regulation of maritime commerce is generally a federal responsibility because of the need for national
and international uniformity, although it noted that states may regulate their own ports and waterways so long as the rules are based on the peculiarities of local waters and do not conflict with
federal regulation. As a result of this ruling, at least two states have repealed regulations concerning the operation, manning, construction or design of tank vessels.

Parties
affected by oil pollution may pursue relief from the Oil Spill Liability Trust Fund, absent full recovery by them against a responsible party. Responsible parties may seek
contribution from the fund for costs incurred that exceeded the liability limits of OPA 90. The responsible party would need to establish that it is entitled to both a statutory defense against
liability and to a statutory limitation of liability to obtain contribution from the fund. If we are deemed a responsible party for an oil pollution incident and are ineligible for contribution from
the fund, the costs of responding to an oil pollution incident could have a material adverse effect on our results of operations, financial condition and cash flows. We presently maintain oil
pollution liability insurance in an amount in excess of that required by OPA 90. Through our protection and indemnity club, the UK P&I Club, our current coverage for oil pollution is $1 billion
per incident. It is possible, however, that our liability for an oil pollution incident may exceed the insurance coverage we maintain.

We
are also subject to potential liability arising under the U.S. Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, which applies to the discharge of
hazardous substances, whether on land or at sea. Specifically, CERCLA provides for liability of owners and operators of tank vessel for cleanup and removal of hazardous substances and provides for
additional

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penalties
in connection with environmental damage. Liability under CERCLA for releases of hazardous substances from vessels is limited to the greater of $300 per gross ton or $5 million per
incident unless attributable to willful misconduct or neglect, a violation of applicable standards or rules, or upon failure to provide reasonable cooperation and assistance. CERCLA liability for
releases from facilities other than vessels is generally unlimited.

We
are required to show proof of insurance, surety bond, self insurance or other evidence of financial responsibility to pay damages under OPA 90 and CERCLA in the amount of $1,500 per
gross ton for vessels, consisting of the sum of the OPA 90 liability limit of $1,200 per gross ton or $10 million per discharge and the CERCLA liability limit of $300 per gross ton or
$5 million per discharge. We have satisfied these requirements and obtained a U.S. Coast Guard Certificate of Financial Responsibility. OPA 90 and CERCLA each preserve the right to recover
damages under other existing laws, including maritime tort law.

Water.The Federal Water Pollution Control Act, also referred to as the Clean Water Act, or CWA, imposes restrictions and
strict controls on the discharge of pollutants into navigable waters, and such discharges generally require permits. The CWA provides for civil, criminal and administrative penalties for any
unauthorized discharges and imposes substantial liability for the costs of removal, remediation and damages. State laws for the control of water pollution also provide varying civil, criminal and
administrative penalties and liabilities in the case of a discharge of petroleum, its derivatives, hazardous substances, wastes and pollutants into state waters. In addition, the Coastal Zone
Management Act authorizes state implementation and development of programs of management measures for non-point source pollution to restore and protect coastal waters.

Solid Waste.Our operations occasionally generate and require the transportation, treatment and disposal of both hazardous
and non-hazardous solid wastes that are subject to the requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state and local requirements. In
August 1998, the EPA added four petroleum refining wastes to the list of RCRA hazardous wastes. In addition, in the course of our tank vessel operations, we engage contractors to remove and
dispose of waste material, including tank residue. In the event that such waste is found to be "hazardous" under either RCRA or the CWA, and is disposed of in violation of applicable law, we could be
found jointly and severally liable for the cleanup costs and any resulting damages. Finally, the EPA does not currently classify "used oil" as "hazardous waste," provided certain recycling standards
are met. However, some states in which we pick up or deliver cargo have classified "used oil" as "hazardous" under state laws patterned after RCRA. The cost of managing wastes generated by tank vessel
operations has increased in recent years under stricter state and federal standards. Additionally, from time to time we arrange for the disposal of hazardous waste or hazardous substances at offsite
disposal facilities. If such materials are improperly disposed of by third parties, we might still be liable for clean up costs under CERCLA or the equivalent state laws.

Air Emissions.The federal Clean Air Act of 1970, as amended by the Clean Air Act Amendments of 1977 and 1990, or CAA,
requires the EPA to promulgate standards applicable to emissions of volatile organic compounds and other air contaminants. Our vessels are subject to vapor control and recovery requirements for
certain cargoes when loading, unloading, ballasting, cleaning and conducting other operations in regulated port areas. Our ITBs are equipped with vapor control systems that satisfy these requirements.
In addition, in December 1999, the EPA issued a final rule regarding emissions standards for marine diesel engines. The final rule applies emissions standards to new engines beginning with the
2004 model year. In the preamble to the final rule, the EPA noted that it may revisit the application of emissions standards to rebuilt or remanufactured engines, if the industry does not take steps
to introduce new pollution control technologies. Finally, the EPA recently entered into a settlement that will expand this rulemaking to include certain large diesel engines not previously

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addressed
in the final rule. Adoption of such standards could require modifications to some existing marine diesel engines and may result in material expenditures.

The
CAA also requires states to draft State Implementation Plans, or SIPs, designed to attain national health-based air quality standards in primarily major metropolitan and/or
industrial areas. Where states fail to present approvable SIPs or SIP revisions by certain statutory deadlines, the federal government is required to draft a Federal Implementation Plan. Several SIPs
regulate emissions resulting from barge loading and degassing operations by requiring the installation of vapor control equipment. As stated above, our ITBs are already equipped with vapor control
systems that satisfy these requirements. Although a risk exists that new regulations could require significant capital expenditures and otherwise increase our costs, we believe, based upon the
regulations that have been proposed to date, that no material capital expenditures beyond those currently contemplated and no material increase in costs are likely to be required.

Coastwise Laws

Substantially all of our operations are conducted in the U.S. domestic trade, which is governed by the coastwise laws of the United States. The U.S. coastwise
laws reserve marine transportation between points in the United States to vessels built in and documented under the laws of the United States (U.S. flag) and owned and manned by U.S. citizens.
Generally, an entity is deemed a U.S. citizen for these purposes so long as:



Because
we could lose our privilege of operating our vessels in the U.S. coastwise trade if non-U.S. citizens were to own or control in excess of 25.0% of our outstanding
interests or those of our general partner, our limited partnership agreement initially restricts foreign ownership and control of our common and subordinated units, and those of our general partner,
to not more than 15.0% of the respective interests.

There
have been repeated efforts aimed at repeal or significant change of the Jones Act. Although we believe it is unlikely that the Jones Act will be substantially modified or repealed,
there can be no assurance that Congress will not substantially modify or repeal such laws. Such changes could have a material adverse effect on our operations and financial condition.

Other

Our vessels are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board, the U.S. Customs Service and the U.S. Maritime
Administration, as well as subject to rules of private industry organizations such as the American Bureau of Shipping. These agencies and organizations establish safety standards and are authorized to
investigate vessels and accidents and to

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recommend
improved maritime safety standards. Moreover, to ensure compliance with applicable safety regulations, the U.S. Coast Guard is authorized to inspect vessels at will.

Occupational Health Regulations

Our vessel operations are subject to occupational safety and health regulations issued by the U.S. Coast Guard and, to an extent, by the U.S. Occupational Safety
and Health Administration. These regulations currently require us to perform monitoring, medical testing and recordkeeping with respect to personnel engaged in the handling of the various cargoes
transported by our vessels.

Security

Heightened awareness of security needs brought about by the events of September 11, 2001 has caused the U.S. Coast Guard, the International Maritime
Organization, and the states and local ports to adopt heightened security procedures relating to ports and vessels. We have updated our procedures in light of the new requirements.

In
2002 Congress passed the Maritime Transportation Security Act of 2002, or MTS Act, which, together with the International Maritime Organization's recent security proposals
(collectively known as The International Ship and Port Security Code), requires specific security plans for our vessels and more rigorous crew identification requirements. We have implemented vessel
security plans and procedures for each of our vessels pursuant to rules implementing the MTS Act that have been issued by the U.S. Coast Guard.

Vessel Condition

Our vessels are subject to periodic inspection and survey by, and drydocking and maintenance requirements of, the U.S. Coast Guard, the American Bureau of
Shipping, or both. We believe we are currently in compliance in all material respects with the environmental and other laws and regulations, including health and safety requirements, to which our
operations are subject. We are unaware of any pending or threatened litigation or other judicial, administrative or arbitration proceedings against us occasioned by any alleged
non-compliance with such laws or regulations. The risks of substantial costs, liabilities and penalties are, however, inherent in marine operations, and there can be no assurance that
significant costs, liabilities or penalties will not be incurred by or imposed on us in the future.

ITEM 2.    PROPERTIES

Our general partner leases approximately 12,700 square feet of office space for our principal executive office in Edison, New Jersey. The lease expires in
May 2009. Our general partner also has the option to renew the lease for an additional five-year period.

ITEM 3.    LEGAL PROCEEDINGS

We are a party to routine, marine-related claims, lawsuits and labor arbitrations arising in the ordinary course of business. All of these claims against us are
substantially mitigated by insurance, subject to deductibles ranging up to $150,000 per claim. On a current basis, we provide for amounts we expect to pay.

26

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PART II.

ITEM 5.    MARKET FOR PARTNERSHIP'S COMMON EQUITY, RELATED SECURITY HOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price of Common Units, Distributions and Related Unitholder Matters

Our common units were listed on the New York Stock Exchange under the symbol "USS" beginning on October 29, 2004. Prior to October 29, 2004, our
equity securities were not publicly traded. As of February 28, 2005, there were 6,899,968 outstanding publicly-traded common units, representing an aggregate 49% limited partner interest in us.
As of February 28, 2005, there were 7 holders of record of our common units, representing approximately 6,000 beneficial owners. The following table sets forth, for the periods indicated, the
high and low sales prices per common unit, as reported on the New York Stock Exchange, and the amount of cash distributions declared per common unit:

|                                          |  | Price Range |       | 
|----------------------------------------- |  | ----------- | ----- | 
|
|
|Fourth Quarter Ended December 31, 2004(2) |  | $           | 27.30 | 

---

The
aggregate amount of distributions declared in respect of the year ended December 31, 2004 on common units, the general partner interests, and subordinated units totaled
$4.1 million.

Initial Public Offering

On November 3, 2004, we completed our initial public offering of 6,000,000 common units at a price of $22.50 per unit, pursuant to a Registration Statement
on Form S-1 (Registration No. 333-118141) originally filed on August 12, 2004. The managing underwriters were Lehman Brothers Inc. and
Citigroup Inc. At that time, the underwriters exercised their over-allotment option to purchase an additional 899,968 common units. Upon completion of the initial public offering,
6,899,968 common units and 6,899,968 subordinated units were outstanding. Total gross proceeds from these sales were $153.5 million. We used these proceeds to repay $93.8 million in
outstanding term debt, provide $24.7 million of working capital, pay $1.3 million of costs associated with amending and restating our credit facility, and redeem the 899,968 common units
held by US Shipping Master LLC for $18.6 million. The proceeds we received from the offering and the use of those proceeds through December 31, 2004 are summarized as follows (in
thousands, except unit and per unit amounts):

|Proceeds received:                        |                                                                    |                                                     |  
|----------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | -
|                                          | Sale of 6,899,968 common units at $22.25 per unit                  |                                                     | $
|                                          |                                                                    |                                                    
|Use of proceeds from sale of common units |                                                                    |                                                     |  
|                                          | Underwriting and structuring fees                                  |                                                     | $
|                                          | Professional fees and other offering costs                         |                                                     |  
|                                          |                                                                    |                                                    
|                                          |                                                                    | Net proceeds                                        |  
|                                          | Repayment of term debt                                             |                                                     |  
|                                          | Redemption of 899,968 units from United States Shipping Master LLC |                                                     |  
|                                          | Costs of amending and restating credit facility                    |                                                     |  
|                                          | Working capital                                                    |                                                     |  
|                                          |                                                                    |                                                    
|                                          |                                                                    | Total use of proceeds from the sale of common units |  
|                                          |                                                                    |                                                    

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CASH DISTRIBUTION POLICY

Distributions of Available Cash

General.Approximately 45 days after the end of each quarter, beginning with the quarter ending December 31,
2004, we will distribute all of our available cash to unitholders of record on the applicable
record date. We prorated the minimum quarterly distribution for the period November 3, 2004 (the completion of the initial public offering) through December 31, 2004 based on the actual
length of the period in which the units were outstanding.

Definition of Available Cash.Available cash generally means, for each fiscal quarter, all cash on hand at the end of the
quarter:



We
currently expect that our estimated maintenance capital expenditures will initially be $17.2 million per year, which is comprised of approximately $10.2 million per year
for mandatory drydocking costs for all of our vessels and approximately $7.0 million per year for retrofitting our ITBs to make them OPA 90 compliant. The amount of estimated maintenance
capital expenditures attributable to future drydocking expenses is based on the anticipated costs of drydockings over our next five-year drydocking cycle. Please read "Item
7.Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesOngoing Capital Expenditures."

Subordination Periods

General.During the subordination periods, which we define below, the common units will have the right to receive
distributions of available cash from basic surplus, as defined below, in an amount equal to the minimum quarterly distribution of $0.45 per quarter, plus any arrearages in the payment of the minimum
quarterly distribution on the common units from prior quarters, before any distributions of available cash from basic surplus may be made on any subordinated units. Distribution arrearages do not
accrue on either class of the subordinated units. The purpose of the subordinated units is to increase the likelihood that during the subordination periods there will be available cash from basic
surplus to be distributed on the common units. Our subordinated units are owned by United States Shipping Master LLC. Only the non-management members of United States Shipping Master LLC
will be entitled to receive distributions of or attributable to the class A subordinated units. The members of United States Shipping Master that serve as our executive officers will not be
entitled to receive distributions of or attributable to the class A subordinated units; the management members will only be entitled to receive distributions of or attributable to the
class B subordinated units.

Definition of Subordination Periods.The class A subordination period will extend until the first day of any quarter,
beginning after December 31, 2009, and the class B subordination period will

28

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extend
until the first day of any quarter, beginning after December 31, 2010, that each of the following tests are met:



If
the unitholders remove the general partner without cause, the subordination periods may end early.

Early Conversion of Class A Subordinated Units.Before the end of the class A subordination period, up to 50%
of the class A subordinated units, or up to 2,636,171 class A subordinated units, may convert into common units on a one-for-one basis immediately after the
distribution of available cash to the partners in respect of any quarter ending on or after:



The
early conversions of the class A subordinated units will occur if at the end of the applicable quarter each of the following three tests is met:



However,
the second early conversion of the second 25% of the class A subordinated units may not occur until at least one year following the early conversion of the first 25% of
the class A subordinated units.

Early Conversion of Class B Subordinated Units.Before the end of the class B subordination period, up to 50%
of the class B subordinated units, or up to 813,814 class B subordinated units, may convert into common units on a one-for-one basis immediately after the
distribution of available cash to the partners in respect of any quarter ending on or after:



29

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Each
early conversion of the class B subordinated units will occur if at the end of the applicable quarter each of the following three tests is met:



However,
the second early conversion of the second 25% of the class B subordinated units may not occur until at least one year following the early conversion of the first 25% of
the class B subordinated units.

Accelerated Early Conversion of Class B Subordinated Units.Notwithstanding the foregoing, 25% of the class B
subordinated units may convert into common units on a one-for-one basis immediately after the distribution of available cash to the partners in respect of any quarter ending on
or after December 31, 2007 if:



In
addition, a further 25% of the class B subordinated units may convert into common units on a one-for-one basis immediately after the distribution of
available cash to the partners in respect of any quarter ending on or after December 31, 2008 if each of the tests in the two bullet points immediately set forth above are met. Finally, if the
test set forth in the second bullet immediately set forth above is met for any four-quarter period ending on or after December 31, 2009 and all class A subordinated units
have been converted into common units, then the remaining class B subordinated units will convert into common units.

For
purposes of determining whether sufficient adjusted basic surplus has been generated under these conversion tests, the conflicts committee may adjust adjusted basic surplus upward or
downward if it in good faith determines that the estimated amount of maintenance capital expenditures used in the
determination of basic surplus was materially incorrect, based on circumstances prevailing at the time of original determination of the estimate.

Definition of Basic Surplus.Basic surplus in any period generally means:



30

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As
described above, basic surplus does not reflect actual cash on hand at closing that is available for distribution to our unitholders. For example, it includes a provision that will
enable us, if we choose, to distribute as basic surplus up to $10 million of cash we receive in the future from non-operating sources, such as the sale of a vessel, issuances of
securities and long-term borrowings, that would otherwise be distributed as capital surplus. In addition, the effect of including, as described above, certain cash distributions on equity
securities or interest payments on debt in basic surplus would be to increase basic surplus by the amount of any such cash distributions or interest payments. As a result, we may also distribute as
basic surplus up to the amount of any such cash distributions or interest payments of cash we receive from non-operating sources.

Definition of Adjusted Basic Surplus.Adjusted basic surplus generally means:



Adjusted
basic surplus is intended to reflect the cash generated from operations during a particular period and therefore excludes net increases in working capital borrowings and net
drawdowns of

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reserves
of cash generated in prior periods. Support payments we receive from Hess are included in adjusted basic surplus.

Effect of Expiration of the Subordination Periods.Upon expiration of the class A subordination period and
class B subordination period, each outstanding class A subordinated unit and class B subordinated unit, respectively, will convert into one common unit and will then participate
pro rata with the other common units in distributions of available cash. In addition, if the unitholders remove our general partner other than for cause and units held by our general partner and its
affiliates are not voted in favor of such removal:



Incentive Distribution Rights

Incentive distribution rights represent the right to receive an increasing percentage of quarterly distributions of available cash from basic surplus after the
minimum quarterly distribution and the target distribution levels have been achieved. Our general partner currently holds the incentive distribution rights, but may transfer these rights separately
from its general partner interest, subject to restrictions in the partnership agreement.

If
for any quarter:



then,
we will distribute any additional available cash from basic surplus for that quarter among the unitholders and our general partner in the following manner:



In
each case, the amount of the target distribution set forth above is exclusive of any distributions to common unitholders to eliminate any cumulative arrearages in payment of the
minimum quarterly distribution. The percentage interests set forth above for our general partner include its 2% general partner interest and assume the general partner has not transferred the
incentive distribution rights.

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ITEM 6.    SELECTED FINANCIAL DATA

The following table sets forth selected historical financial data and operating data of U.S. Shipping Partners L.P. and its predecessors. On November 3,
2004, United States Shipping Master LLC contributed substantially all its assets and liabilities constituting its business to us in connection with our initial public offering of common units.
Therefore, our historical financial and operating data presented below are for United States Shipping Master LLC for all periods prior to November 3, 2004. The following table should be read in
conjunction with the consolidated financial statements, including notes thereto, in Item 8 of this report, and "Management's Discussion and Analysis of Financial Condition and Results of Operations"
in Item 7 of this report.

The
following table presents a non-GAAP financial measure, EBITDA, which we use in our business. This measure is not calculated or presented in accordance with United States
Generally Accepted Accounting Principles ("GAAP"). We explain this measure below and reconcile it to its most directly comparable financial measure calculated and presented in accordance with GAAP in
"Non-GAAP Financial Measure" below.

The
following table summarizes our results of operations for the periods presented (in thousands, except per unit data):

|                                     |                                                           | U.S. Shipping Partners L.P. |         | Catug Group of Amerada Hess Corporation |  
|------------------------------------ | --------------------------------------------------------- | --------------------------- | ------- | --------------------------------------- | -
|
|Voyage revenue                       |                                                           | $                           | 122,355 |                                         | $
|Vessel operating expenses            |                                                           |                             | 47,119  |                                         |  
|Voyage expenses                      |                                                           |                             | 20,415  |                                         |  
|General and administrative expenses  |                                                           |                             | 10,321  |                                         |  
|Depreciation and amortization        |                                                           |                             | 23,945  |                                         |  
|                                     |                                                           |                             |         |                                         |  
|                                     | Operating income                                          |                             |         | 20,555                                  |  
|Interest expense                     |                                                           |                             | 9,960   |                                         |  
|Loss on debt extinguishment          |                                                           |                             | 6,397   |                                         |  
|Other income                         |                                                           |                             | (369    | )                                       |  
|                                     |                                                           |                             |         |                                         |  
|                                     | Income (loss) before provision (benefit) for income taxes |                             |         | 4,567                                   |  
|Provision (benefit) for income taxes |                                                           |                             | 3,119   |                                         |  
|                                     |                                                           |                             |         |                                         |  
|                                     | Net income (loss)                                         |                             | $       | 1,448                                   |  
|                                     |                                                           |                             |         |                                         |  
|                                     | Net income (loss) per unitbasic and diluted              |                             | $       | 0.18                                    |  
|Balance Sheet Data (at year end):    |                                                           |                             |         |                                         |  
|Vessels and equipment, net           |                                                           | $                           | 201,923 |                                         | $
|Total assets                         |                                                           | $                           | 247,305 |                                         | $
|Total debt                           |                                                           | $                           | 99,625  |                                         | $
|Members' equity/partners' capital    |                                                           | $                           | 122,786 |                                         | $
|Cash Flow Data:                      |                                                           |                             |         |                                         |  
|Net cash provided by (used in):      |                                                           |                             |         |                                         |  
|                                     | Operating activities                                      |                             | $       | 27,184                                  |  
|                                     | Investing activities                                      |                             | $       | (34,541                                 | )
|                                     | Financing activities                                      |                             | $       | 29,050                                  |  
|                                     |                                                           |                             |         |                                         |  

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|Other Financial Data:                                               |             |       |        |        |        |        |        |        |        |         |         |        |        |        |        |   |   |        |  
|------------------------------------------------------------------- | ----------- | ----- | ------ | ------ | ------ | ------ | ------ | ------ | ------ | ------- | ------- | ------ | ------ | ------ | ------ | - | - | ------ | -
|EBITDA (2)                                                          |             | $     | 38,103 |        | $      | 30,329 |        | $      | 7,377  |         | $       | 11,035 |        | $      | 5,637  |   | $ | 3,246  |  
|Capital expenditures                                                |             |       |        |        |        |        |        |        |        |         |         |        |        |        |        |   |   |        |  
|                                                                    | Maintenance |       | $      |       |        | $      | 12,448 |        | $      |        |         | $      |       |        | $      |  |   | $      | 
|                                                                    | Expansion   |       |        | 40,930 |        |        | 5,881  |        |        | 191,982 |         | $      | 18,193 |        |        |  |   |        | 
|                                                                    |             |       |        |        |        |        |        |        |        |         |         |        |       
|                                                                    |             | Total |        | $      | 40,930 |        | $      | 18,329 |        | $       | 191,982 |        | $      | 18,193 |        | $ |  |        | $
|                                                                    |             |       |        |        |        |        |        |        |        |         |         |        |       
|Distributions declared per common unit in respect of the period (3) |             | $     | 0.2885 |        | $      |       |        | $      |       |         | $       |       |        | $      |       |   | $ |       |  
|Operating Data:                                                     |             |       |        |        |        |        |        |        |        |         |         |        |        |        |        |   |   |        |  
|Number of vessels                                                   |             |       | 8      |        |        | 7      |        |        | 6      |         |         | 6      |        |        | 6      |   |   | 6      |  
|Total barrel carrying capacity (in thousands at period end)         |             |       | 2,735  |        |        | 2,375  |        |        | 2,160  |         |         | 2,160  |        |        | 2,160  |   |   | 2,160  |  
|Total vessel days                                                   |             |       | 2,810  |        |        | 2,430  |        |        | 660    |         |         | 1,530  |        |        | 2,190  |   |   | 2,196  |  
|Days worked                                                         |             |       | 2,776  |        |        | 2,298  |        |        | 587    |         |         | 1,488  |        |        | 2,040  |   |   | 2,097  |  
|Drydocking days                                                     |             |       |       |        |        | 122    |        |        | 73     |         |         | 42     |        |        | 139    |   |   | 91     |  
|Net utilization (4)                                                 |             |       | 99     | %      |        | 95     | %      |        | 89     | %       |         | 97     | %      |        | 93     | % |   | 95     | %
|Average Daily Time Charter EquivalentsITBs(5)(6)                   |             | $     | 34,760 |        | $      | 31,590 |        | $      | 29,520 |         | $       | 29,740 |        | $      | 24,090 |   | $ | 22,030 |  
|Average Daily Time Charter EquivalentsParcel tankers(5)(7)         |             | $     | 38,285 |        | $      | 31,505 |        | $      |       |         | $       |       |        | $      |       |   | $ |       |  

---

34

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Non-GAAP Financial Measure

EBITDA is used as a supplemental financial measure by management and by external users of our financial statements, such as investors and our banks, to assess:



EBITDA
should not be considered an alternative to net income, operating income, cash flow from operating activities or any other measure of financial performance or liquidity presented
in accordance with GAAP. EBITDA excludes some, but not all, items that affect net income and operating income, and these measures may vary among other companies. Therefore, EBITDA as presented below
may not be comparable to similarly titled measures of other companies.

|                                                                           |                                                  | U.S. Shipping Partners L.P. |        | Catug Group of Amerada Hess Corporation |  
|-------------------------------------------------------------------------- | ------------------------------------------------ | --------------------------- | ------ | --------------------------------------- | -
|
|Reconciliation of "EBITDA" to "Net income":                                |                                                  |                             |        |                                         |  
|                                                                           | Net income (loss)                                |                             | $      | 1,448                                   |  
|                                                                           | Depreciation and amortization                    |                             |        | 23,945                                  |  
|                                                                           | Interest expense                                 |                             |        | 9,960                                   |  
|                                                                           | Provision (benefit) for income taxes             |                             |        | 3,119                                   |  
|                                                                           | Interest income                                  |                             |        | (369                                    | )
|                                                                           |                                                  |                             |        |                                         |  
|EBITDA                                                                     |                                                  | $                           | 38,103 |                                         | $
|                                                                           |                                                  |                             |        |                                         |  
|Reconciliation of "EBITDA" to "Net cash provided by operating activities": |                                                  |                             |        |                                         |  
|                                                                           | Net cash provided by operating activities        |                             | $      | 27,184                                  |  
|                                                                           | Payment of drydocking expenditures               |                             |        |                                        |  
|                                                                           | Interest expense paid                            |                             |        | 9,160                                   |  
|                                                                           | (Increase) decrease in operating working capital |                             |        | 8,139                                   |  
|                                                                           | Loss on debt extinguishment                      |                             |        | (6,397                                  | )
|                                                                           | Income taxes paid                                |                             |        | 17                                      |  
|                                                                           |                                                  |                             |        |                                         |  
|EBITDA                                                                     |                                                  | $                           | 38,103 |                                         | $
|                                                                           |                                                  |                             |        |                                         |  

---



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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the historical consolidated financial condition and results of operations of U.S. Shipping Partners L.P. and, prior to our
November 3, 2004 initial public offering, of our predecessor company, United States Shipping Master LLC and its predecessors, and should be read in conjunction with our historical consolidated
financial statements and notes thereto included elsewhere in this report.



We are a leading provider of long-haul marine transportation services, principally for refined petroleum products, in the U.S. domestic "coastwise"
trade. We are also involved, to a limited extent, in the coastwise transportation of petrochemical and commodity chemical products. Marine transportation is a vital link in the distribution of refined
petroleum, petrochemical and commodity chemical products in the United States, with approximately 28% of domestic refined petroleum products being transported by water in 2002. Our fleet consists of
eight tank vessels: six integrated tug barge units, or ITBs, and two specialty refined petroleum and chemical product, or parcel, tankers. Our primary customers are major oil and chemical companies. A
significant portion of our fleet capacity is currently committed to these companies pursuant to contracts with initial terms of one year or more, which provides us with a relatively predictable level
of cash flow. We do not assume ownership of any of the products that we transport on our vessels.

Our
market is largely insulated from direct foreign competition because the Merchant Marine Act of 1920, commonly referred to as the Jones Act, restricts U.S.
point-to-point maritime shipping to vessels operating under the U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens and manned by U.S.
crews. All of our vessels are qualified to transport cargo between U.S. ports under the Jones Act.

We
began operations in September 2002 when we acquired our six ITBs from a division of Amerada Hess Corporation ("Hess") that was managed by several executive officers of our
general partner. Our six ITBs primarily transport clean refined petroleum products, such as gasoline, diesel fuel, heating oil, jet fuel and lubricants, from refineries and storage facilities to a
variety of destinations, including other
refineries and distribution terminals. Four of our ITBs are currently operating under contracts with Hess, BP and Shell, one of which expires in September 2005 and one of which expires in
January 2006, with the remaining two expiring in late 2006. Our remaining two ITBs are currently operating in the spot market. Regardless of our contract rates and rates in the spot market, we
are assured specified minimum charter rates for our ITBs through September 13, 2007, subject to certain limited exceptions, pursuant to a support agreement we entered into with Hess in
connection with our acquisition of the six ITBs.

Our
two parcel tankers, theChemical Pioneerand theCharleston, which we acquired in
May 2003 and April 2004, respectively, primarily transport specialty refined petroleum, petrochemical and commodity chemical products, such as lubricants, paraxylene, caustic soda and
glycols, from refineries and petrochemical manufacturing facilities to other manufacturing facilities or distribution terminals. We have contracts with Dow Chemical, ExxonMobil, Koch Industries,
Lyondell Chemical and Shell with specified minimum volumes that will, in aggregate, account for approximately 74% of the anticipated usable capacity of the Charlestonthrough July 2007 and 75% of
the anticipated usable capacity of theChemical Pioneerthrough February 2007. In addition, these customers are required to ship on our parcel tankers any additional volume of these products stipulated in the contracts. As a result, we expect these
companies will utilize substantially all of the non-committed capacity of these vessels during those periods.

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In
August 2004, we signed a fixed-price contract for construction of a 19,999 ton articulated tug barge unit, or ATB, which is scheduled to be delivered in early 2006. We have
entered into contracts to carry commodity chemical products with specified minimum cargo volumes that will utilize approximately 77% of the ATB's anticipated capacity through September 2007 and
approximately 67% of the ATB's anticipated capacity thereafter through June 2010. If delivery of the ATB is delayed, we anticipate that we will either use available cargo capacity on one of our
vessels or charter additional vessels to meet our contractual obligations pending delivery of the ATB. Our ATB construction contract also provides us with options to purchase three additional ATBs
over the next 24 months at fixed prices, subject to limited exceptions.

We
generate revenue by charging customers for the transportation and distribution of their products utilizing our vessels. These services are generally provided under the following four
basic types of contractual relationships:



The
principal difference between contracts of affreightment and consecutive voyage charters is that in contracts of affreightment the customer is obligated to transport a specified minimum amount of
product on our vessel during the contract period, while in a consecutive voyage charter the customer is obligated to fill the contracted portion of the vessel with its product every time the vessel
calls at its facility during the contract period and, if the customer does not have product ready to ship, it must pay us for idle time.

The
table below illustrates the primary distinctions among these types of contracts:

|                          |  | Time Charter                                                |  | Contract of
Affreightment |  | Consecutive
Voyage
Charter       |  | Spot Charter         
|------------------------- |  | ----------------------------------------------------------- |  | ------------------------- |  | -------------------------------- |  | ---------------------
|Typical contract length   |  | One year or more                                            |  | One year or more          |  | One year or more                 |  | Single voyage        
|Rate basis                |  | Daily                                                       |  | Per ton                   |  | Per ton                          |  | Varies               
|Voyage expenses           |  | Customer pays                                               |  | We pay                    |  | We pay                           |  | We pay               
|Vessel operating expenses |  | We pay                                                      |  | We pay                    |  | We pay                           |  | We pay               
|Idle time                 |  | Customer pays as long as vessel is available for operations |  | Customer does not pay     |  | Customer pays if cargo not ready |  | Customer does not pay

For the years ended December 31, 2004 and 2003, we derived approximately 82% and 75%, respectively, of our revenue under time charters,
consecutive voyage charters and contracts of affreightment, and approximately 18% and 25%, respectively, of our revenue from spot charters.

The
amounts received from or paid to Hess pursuant to the Hess support agreement are not recognized as revenue or expense but are deferred for accounting purposes and will be reflected
as an adjustment to the purchase price relating to the acquisition of the ITBs.

37

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SIGNIFICANT EVENTS DURING 2004

Initial Public Offering

On July 30, 2004, the Partnership was formed to own and operate the petroleum, refined petroleum, and chemical product marine transportation, distribution
and logistics business conducted by United States Shipping Master LLC. On November 3, 2004, United States Shipping Master LLC contributed substantially all of its assets and liabilities to the
Partnership in connection with the initial public offering of common units representing limited partner interests in the Partnership (the "common units"). In exchange for these assets and liabilities,
United States Shipping Master LLC received
899,968 common units and 6,899,968 subordinated units representing limited partner interests in the Partnership.

On
November 3, 2004, the Partnership completed its initial public offering of 6,899,968 common units (including 899,968 common units sold upon exercise of the underwriters'
over-allotment option) at a price of $22.25 per unit. Total gross proceeds from this sale were $153.5 million, before underwriting and structuring fees of $10.9 million, and
offering costs of approximately $4.2 million. The Partnership used proceeds to repay $93.8 million in outstanding term debt, provide $24.7 million of working capital, pay
$1.3 million of costs associated with amending and restating our credit facility, and redeem the 899,968 common units held by United States Shipping Master LLC for $18.6 million. See
"Item 5. Market for Partnership's Common Equity, Related Security Holder Matters, and Issuer Purchases of Equity Securities".

At
the closing of the initial public offering, the Partnership entered into a second amended and restated credit agreement that provides for a $100 million term loan and the
ability to borrow up to an additional $120 million of term loans under certain circumstances. Principal and interest is due and payable quarterly. The term loan matures on April 30,
2010. The credit agreement also provides a $50 million revolving credit facility which expires November 2, 2009. The loans are collateralized by all the Partnership's assets including
eight vessels owned by the Partnership. The second amended and restated credit facility contains various financial covenants including certain restrictions on the sale or acquisition of assets and a
requirement to adhere to specified financial ratios. See "Second Amended and Restated Credit Facility" for more information about this credit facility.

Definitions

In order to understand our discussion of our results of operations, it is important to understand the meaning of the following terms used in our analysis and the
factors that influence our results of operations:



38

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
conformity with U.S. generally accepted accounting principles, or GAAP. In preparing these financial statements, we are required to make certain estimates, judgments and assumptions. These estimates,
judgments and assumptions affect the reported amounts of our assets and liabilities, including the disclosure of contingent assets and

39

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liabilities,
at the date of the financial statements and the reported amounts of our revenues and expenses during the periods presented. We evaluate these estimates and assumptions on an ongoing
basis. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable at the time the estimates and assumptions are made. However, future
events and their effects cannot be predicted with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from these
estimates and assumptions under different circumstances or conditions, and such differences may be material to the financial statements. We believe that, of our significant accounting policies
discussed in Note 3 to our consolidated financial statements, the following may involve a higher degree of judgment.

Revenue Recognition

We earn revenue under contracts of affreightment, spot charters, consecutive voyage charters and time charters. For contracts of affreightment, spot charters and
consecutive voyage charters, revenue and voyage expenses are recognized based upon the relative transit time in each period. Although contracts of affreightment, consecutive voyage charters and
certain contracts for spot charters may be effective for a period in excess of one year, revenue is recognized on the basis of individual voyages, which are generally less than 15 days in
duration. For time charters, revenue is recognized on a daily basis over the contract period, with expenses recognized as incurred.

Depreciation and Amortization

Vessels and equipment are recorded at cost, including transaction fees where appropriate, and depreciated to salvage value using the straight-line
method as follows: ITBs to their mandatory retirement as required by OPA 90, between 2012 and 2014; and 10 years for parcel tankers. We capitalize expenditures incurred for drydocking and
amortize these expenditures over 60 months for our ITBs and 30 months for our parcel tankers. The aggregate number of drydockings undertaken in a given period and the nature of the work
performed determine the level of drydocking expenditures. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed.

The
gross book values of our vessels may not represent their fair market value at any point in time since the market prices of second-hand vessels tend to fluctuate with
changes in charter rates and the cost of newbuildings. Historically, both charter rates and vessel values tend to be cyclical. We record impairment losses only when events occur that cause us to
believe that future cash flows for any individual vessel will be less than its net book value. The net book value of vessels held and used by us is reviewed for potential impairment whenever events or
changes in circumstances indicate that the carrying amount of a particular vessel may not be fully recoverable. In such instances, an impairment charge would be recognized if the estimate of the
undiscounted future cash flows expected to result from the use of the vessel and its eventual disposition is less than the vessel's net book value. This assessment is made at the individual vessel
level since separately identifiable cash flow information for each vessel is available.

In
developing estimates of future cash flows, we must make assumptions about future charter rates, vessel operating expenses and the estimated remaining useful lives of the vessels.
These assumptions are based on historical trends as well as future expectations. Although management believes that the assumptions used to evaluate potential impairment are reasonable and appropriate,
such assumptions are highly subjective.

Accounts Receivable

We extend credit to our customers in the normal course of business. We regularly review our accounts, estimate the amount of uncollectible receivables each period
and establish an allowance for uncollectible amounts. The amount of the allowance is based on the age of unpaid amounts,

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information
about the current financial strength of customers and other relevant information known. Historically, credit risk with respect to our trade receivables has generally been considered
minimal because of the financial strength of our customers.

Deferred Income Taxes

We provide deferred taxes for the tax effects of differences between the financial reporting and tax bases of assets and liabilities of our corporate subsidiary,
which are recorded at enacted tax rates in effect for the years in which the differences are projected to reverse. A valuation allowance is provided, if necessary, for deferred tax assets that are not
expected to be realized.

Results of Operations

The following table summarizes our results of operations (dollars in thousands, except for daily rates):

|                                    |                                                    | U.S. Shipping Partners L.P. |         | Catug Group of Amerada Hess Corporation |  
|----------------------------------- | -------------------------------------------------- | --------------------------- | ------- | --------------------------------------- | -
|
|Voyage revenue                      |                                                    | $                           | 122,355 |                                         | $
|Vessel operating expenses           |                                                    |                             | 47,119  |                                         |  
|% of voyage revenue                 |                                                    |                             | 38.5    | %                                       |  
|Voyage expenses                     |                                                    |                             | 20,415  |                                         |  
|% of voyage revenue                 |                                                    |                             | 16.7    | %                                       |  
|General and administrative expenses |                                                    |                             | 10,321  |                                         |  
|% of voyage revenue                 |                                                    |                             | 8.4     | %                                       |  
|Depreciation and amortization       |                                                    |                             | 23,945  |                                         |  
|                                    |                                                    |                             |         |                                         |  
|                                    | Operating income                                   |                             |         | 20,555                                  |  
|% of voyage revenue                 |                                                    |                             | 16.8    | %                                       |  
|Interest expense                    |                                                    |                             | 9,960   |                                         |  
|Loss on debt extinguishment         |                                                    |                             | 6,397   |                                         |  
|Other income                        |                                                    |                             | (369    | )                                       |  
|                                    |                                                    |                             |         |                                         |  
|                                    | Income before provision for income taxes           |                             |         | 4,567                                   |  
|Provision for income taxes          |                                                    |                             | 3,119   |                                         |  
|                                    |                                                    |                             |         |                                         |  
|                                    | Net income (loss)                                  |                             | $       | 1,448                                   |  
|                                    |                                                    |                             |         |                                         |  
|ITBs                                |                                                    |                             |         |                                         |  
|                                    | Total vessel days                                  |                             |         | 2,196                                   |  
|                                    | Days worked                                        |                             |         | 2,186                                   |  
|                                    | Drydocking days                                    |                             |         |                                        |  
|                                    | Net utilization                                    |                             |         | 99.5                                    | %
|                                    | Average Time Charter Equivalent Rate(2)            |                             | $       | 34,760                                  |  
|Parcel Tankers(3)                   |                                                    |                             |         |                                         |  
|                                    | Total Vessel Days                                  |                             |         | 614                                     |  
|                                    | Days Worked                                        |                             |         | 590                                     |  
|                                    | Drydocking Days                                    |                             |         |                                        |  
|                                    | Net utilization                                    |                             |         | 96.1                                    | %
|                                    | Average Parcel Tanker Time Charter Equivalent Rate |                             | $       | 38,285                                  |  

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|                      |                    | U.S. Shipping Partners L.P. |   | Catug Group of Amerada Hess Corporation
|--------------------- | ------------------ | --------------------------- | - | ---------------------------------------
|
|Net Voyage Revenue(1) |                    |                             |   |                                        
|                      | Voyage revenues    |                             | $ | 122,355                                
|                      | Voyage expenses    |                             |   | 20,415                                 
|                      |                    |                             |   |                                        
|                      | Net voyage revenue |                             | $ | 101,940                                
|                      |                    |                             |   |                                        

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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Voyage Revenue.Voyage revenue was $122.4 million for the year ended December 31, 2004, an increase of
$41.8 million, or 52%, as compared to voyage revenue of $80.5 million for the year ended December 31, 2003. Voyage revenue excluding voyage expenses was $101.9 million for
the year ended December 31, 2004, an increase of $31.3 million, or 44%, as compared to the year ended December 31, 2003. TheChemical
Pioneer, which we purchased in May 2003, contributed $2.4 million of voyage revenue, including $0.3 million under a bareboat charter in the year ending
December 31, 2003, and contributed $16.6 million of voyage revenue in 2004. TheCharleston, which we purchased in April 2004,
contributed $12.5 million of voyage revenue. In August 2004, we time chartered a parcel tanker, which contributed $4.5 million of voyage revenue to fulfill our obligations under
contracts of affreightment. The remaining
increase in 2004 is primarily a result of more of our vessels operating under contracts where we paid the voyage expenses but received higher freight rates to compensate us for bearing these expenses.

Vessel Operating Expenses.Vessel operating expenses were $47.1 million for the year ended December 31, 2004,
an increase of $14.0 million, or 42%, as compared to $33.1 million for the year ended December 31, 2003. TheChemical Pioneer,which was purchased in May 2003, was in drydock until November 2003 and theCharleston, which we did not own in 2003, accounted for
$10.3 million, or 74%, of the increase in vessel operating expenses for the year ended December 31, 2004. In August 2004, we time chartered a parcel tanker to fulfill our
obligations under contracts of affreightment resulting in increased vessel operating expenses of $4.0 million for the year ended December 31, 2004.

Voyage Expenses.Voyage expenses were $20.4 million for the year ended December 31, 2004, an increase of
$10.5 million, or 106%, as compared to voyage expenses of $9.9 million for the year ended December 31, 2003. Voyage expenses as a percentage of voyage revenue increased from 12.3%
in the year ended December 31, 2003 to 16.7% in the year ended December 31, 2004. In August 2004, we time chartered a parcel tanker to fulfill our obligations under contracts of
affreightment resulting in increased voyage expenses of $1.1 million for the year ended December 31, 2004. The remaining increase in voyage expenses, both in dollars and as a percentage
of voyage revenue, was the result of

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one
additional ITB being employed in the spot market during 2004, where we paid voyage expenses and received higher freight rates to compensate us for bearing these expenses.

General and Administrative Expenses.General and administrative expenses were $10.3 million for the year ended
December 31, 2004, an increase of $3.2 million, or 44%, compared to $7.2 million for the year ended December 31, 2003. In November 2004 we paid a $2.3 million
bonus to management and staff in connection with the closing of our public offering and in April 2004 we paid a $0.4 million bonus to management in connection with the purchase of the Charleston. Additionally, incremental costs of $1.0 million associated with being a public entity, including quarterly and annual reporting
requirements, tax returns and schedule K-1 preparation were incurred for the year ended December 31, 2004. For the first 38 days of 2003, we utilized office space and
other administrative services at Amerada Hess' New Jersey headquarters at no charge. General and administrative expenses include management fees of $0.6 million paid to an affiliate of Sterling
Investment Partners, L.P. in the years ended December 31, 2004 and 2003.

Depreciation and Amortization.Depreciation and amortization was $23.9 million for the year ended December 31,
2004, an increase of $6.0 million, or 34%, as compared to $17.9 million for the year ended December 31, 2003. This increase is due to the amortization of the capitalized drydock
expenditures for, and depreciation of, theChemical Pioneer, which we acquired in May 2003 and drydocked in July 2003, and depreciation of
theCharleston, which we acquired in April 2004.

Interest Expense.Interest expense was $10.0 million for the year ended December 31, 2004, a decrease of
$79 thousand, or 1%, as compared to $10.0 million for the year ended December 31, 2003. Although we increased our borrowings in July 2003 to finance the drydocking, pay a
portion of the purchase price and provide working capital for the operation of theChemical Pioneerin 2003, we had lower outstanding loan balances
during the first quarter of 2004 due to scheduled amortization of debt during 2003 and lower interest rates. In April 2004, we amended our then existing credit facility and increased our debt
outstanding to purchase theCharlestonbut at lower interest rates. Additionally, in November 2004 we amended our then existing credit facility
in connection with the closing of our initial public offering and utilized proceeds to reduce our debt balance by $93.8 million, resulting in reduced interest expense.

Loss on Debt Extinguishment.During 2004, we refinanced our credit facility in April and November resulting in a
$6.4 million loss on debt extinguishment. This represents write-off of certain transaction fees associated with the debt that was repaid as well as certain other costs incurred in
the transaction. In April 2004, we amended and restated our then existing credit facility, resulting in a $3.2 million charge, and used the proceeds to repay higher interest rate debt.
In November 2004, we amended and restated our then existing credit facility, resulting in a $3.2 million charge, in connection with the closing of our initial public offering.

Provision for Income Taxes.A provision of $3.2 million resulted principally from the recording of deferred taxes
relating to the change in the structure of one of our subsidiaries to a corporation. The corporate subsidiary consists of theChemical Pioneerand its
results of operations. This subsidiary is subject to federal and state income taxes. This provision was partially offset by a net benefit of $0.1 million that arose from operating results of
our corporate subsidiaries.

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Net Income.Net income was $1.4 million for the year ended December 31, 2004, a decrease of
$1.0 million, or 40%, as compared to $2.4 million for the year ended December 31, 2003. This decrease is the result of the $3.1 million provision for income taxes resulting
primarily from a change in the structure of one of our subsidiaries to a corporation, a loss on debt extinguishment of $6.4 million, coupled with increased general and administrative, vessel
operating and voyage expenses. This decrease is partially offset by increased operating income as the result of the inclusion of theChemical PioneerandCharlestonin 2004, as well as higher charter rates under certain of our contracts in 2004.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Voyage Revenue.Voyage revenue was $80.5 million for the year ended December 31, 2003, an increase of
$16.0 million, or 25%, as compared to voyage revenue of $64.5 million for the year ended December 31, 2002. The voyage revenue for the period January 1, 2002 through
September 12, 2002 (the "2002 Pre-Acquisition Period") was $44.8 million and voyage revenue for the period July 16, 2002 through December 31, 2002 (the "2002
Post-Acquisition Period") was $19.7 million. Although the predecessor of United States Shipping Master LLC was formed on July 16, 2002, it did not commence operations until
it acquired the six ITBs from Hess on September 13, 2002.

The
increase in 2003 was primarily due to expiration of time charters for two ITBs in June and August 2002. These vessels were employed in the spot market in 2003 at a time
charter equivalent rate higher than the rate received under the time charters, which resulted in additional voyage revenue in 2003. Rate escalations in time charter contracts for two ITBs also
increased voyage revenue in 2003. Charterers paid $1.2 million in additional charter hire payments in 2003 for vessel modifications made by us, which amounts we expensed. In addition, during
the 2002 Pre-Acquisition Period one ITB was chartered to another division of Hess at a rate less than the market rate. TheChemical Pioneer,
which we purchased in May 2003, generated $2.4 million of voyage revenue in 2003, including $0.3 million from a bareboat charter of the vessel prior to its drydock in
July 2003. The increase in our voyage revenue in the 2002 Post-Acquisition Period and in 2003 was partially the result of more of our vessels operating under contracts where we paid
the voyage expenses but received higher freight rates to compensate us for bearing these expenses.

Two
ITBs were in drydock and, therefore, out of service for 115 days in 2002, which we estimate reduced 2002 revenue by $2.2 million. One ITB was in drydock for
approximately 40 days during the 2002 Pre-Acquisition Period (during which the Catug Group did not earn revenue on
the vessel) and 24 days during the 2002 Post-Acquisition Period, while the other ITB was in drydock for approximately 51 days during the 2002 Post-Acquisition
Period. We purchased theChemical Pioneeron May 6, 2003 and it was placed on a bareboat charter to Dow Chemical for $4,657 per day, or
$0.3 million in aggregate, until the vessel was drydocked in July 2003. The drydock was completed in November 2003 and theChemical
Pioneeroperated under contracts of affreightment for the remainder of the year.

Vessel Operating Expenses.Vessel operating expenses were $33.1 million for the year ended December 31, 2003, a
decrease of $3.0 million, or 8%, as compared to total vessel operating expenses of $36.1 million for 2002. The 2002 Pre-Acquisition Period vessel operating expenses were
$28.4 million and 2002 Post-Acquisition Period vessel operating expenses were $7.8 million. Vessel operating expenses decreased principally due to the inclusion of
$4.2 million of lease operating expense for one ITB and drydock expense of $3.6 million in the 2002 Pre-Acquisition Period. Hess estimated the cost of future drydocking
expenses and accrued these expenses evenly over a five-year period. Our policy is to capitalize drydock expenditures as incurred and to amortize these costs over the vessel's drydock
cycle. Hess leased one ITB during the 2002 Pre-Acquisition Period, which it purchased in connection with the sale of the six ITBs to us. The decrease in operating expense in 2003 was
partially offset by the inclusion of $2.5 million of expense from the operation of theChemical Pioneerfollowing its acquisition in
May 2003 and by the increase of union labor and benefit costs and vessel insurance expense. Vessel operating expenses as a percentage of voyage revenue were 41.2% in 2003, compared to 63.3% for
the

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2002
Pre-Acquisition Period and 39.4% for the 2002 Post-Acquisition Period. The changes in the percentage of operating expense as compared to voyage revenue is the result of
the previously noted difference in accounting for drydock expense and the inclusion of operating lease expense in the 2002 Pre-Acquisition Period, as well as the fact that in the 2002
Post-Acquisition Period and 2003 more of our vessels were operating under contracts where we paid the voyage expenses but received higher freight rates to compensate us for bearing these
expenses, which increased our voyage revenue, partially offset by the operation of theChemical Pioneerin 2003.

Voyage Expenses.Voyage expenses were $9.9 million for the year ended December 31, 2003, an increase of
$4.8 million, or 94%, as compared to total voyage expenses of $5.1 million for the year ended December 31, 2002. The 2002 Pre-Acquisition Period voyage expenses were
$2.7 million and the 2002 Post-Acquisition Period expenses were $2.4 million. Voyage expenses as a percentage of voyage revenue was 6.1% in the 2002
Pre-Acquisition Period, 12.1% in the 2002 Post-Acquisition Period and 12.3% in 2003. The increase in voyage expenses, both in dollars and as a percentage of voyage revenue, in
2003 and the 2002 Post-Acquisition Period was primarily due to three ITBs coming off time charter, where the customers pays the voyage expenses, and operating under spot charters or
contracts of affreightment, where we pay the voyage expenses. The increase in voyage expenses was partially offset by the fact that during the 2002 Pre-Acquisition Period one ITB was
chartered to another division of Hess pursuant to a contract of affreightment, while during the 2002 Post-Acquisition Period and 2003 that ITB was operated under a time charter with Hess.

General and Administrative Expenses.General and administrative expenses were $7.2 million for 2003, an increase of
$2.3 million, or 47%, as compared to total general and administrative expenses of $4.9 million for 2002. The 2002 Pre-Acquisition Period general and administrative expenses
were $2.7 million and 2002 Post-Acquisition Period general and administrative expenses were $2.2 million. The increase in 2003 was attributable to management fees of
$0.2 million and $0.6 million paid to an affiliate of Sterling Investment Partners, L.P. in the 2002 Post-Acquisition Period and 2003, respectively, office rent of
$0.2 million in 2003, bonuses to the management and staff of $1.4 million in 2003 and increased staffing costs of $0.3 million as a result of our increased operations. In the 2002
Pre-Acquisition Period, the use of office space and charges for other administrative services was charged to the Catug Group on an intercompany basis. Hess provided all required financial,
legal, risk management, human resources and management information system services to the Catug Group. The fees charged for these services were based upon the estimated level of time expended by the
functional units and volume-related charges for information systems activities. In the 2002 Post-Acquisition Period and the first 38 days of 2003, we were able to utilize office
space and other administrative services at Hess' New Jersey headquarters at no charge. We relocated to our own office space in February 2003.

Depreciation and Amortization.Depreciation and amortization was $17.9 million for the year ended December 31,
2003, an increase of $10.2 million, or 131%, as compared to total depreciation and amortization of $7.8 million for the fiscal year ended December 31, 2002. The 2002
Pre-Acquisition Period depreciation and amortization was $2.7 million and the 2002 Post-Acquisition Period depreciation and amortization was $5.1 million. The
significant increase in depreciation and amortization in 2003 and the 2002 Post-Acquisition Period was due to the write-up of the ITBs acquired from Hess and, with respect to
2003, the capitalization of the drydocking cost of theChemical Pioneer, which we began amortizing over 30 months in November 2003. The
total purchase price for the six ITBs, including transaction fees, was $191.5 million. At the time of the acquisition, the gross book value of the five ITBs owned by Hess was
$50.0 million. Hess was leasing the sixth ITB, which it purchased in connection with its sale of the six ITBs to us.

Interest Expense.Interest expense was $10.0 million in 2003 and $3.0 million for the 2002
Post-Acquisition Period. In September 2002, we borrowed $159.0 million to finance the purchase of six ITBs from Hess. Hess did not allocate any interest expense to the Catug
Group in the 2002

45

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Pre-Acquisition
Period. In July 2003, we borrowed $15.0 million to finance the drydocking of, payment of a portion of the purchase price of, and working capital for the
operation of theChemical Pioneer.

Provision for Income Taxes.Provision for income taxes was $2.9 million for the 2002 Pre-Acquisition
Period. All of the companies in the Catug Group of Hess were corporations and were subject to federal income tax. The provision for taxes in the 2002 Post-Acquisition Period represents
federal and state income taxes for the one United
States Shipping Master LLC subsidiary that was a corporation subject to federal and state income taxes, as well as state income taxes for those states that tax our limited liability company
subsidiaries as corporations. As a limited liability company, United States Shipping Master LLC is treated as a partnership for federal income tax purposes.

Net Income.Net income was $2.4 million for 2003, a decrease of $2.3 million, or 49%, as compared to total net
income of $4.8 million for 2002. The 2002 Pre-Acquisition Period net income was $5.4 million and the 2002 Post-Acquisition Period net loss was
$0.7 million. The decrease in 2003 was the result of a $10.2 million increase in depreciation and amortization, a $7.0 million increase in net interest expense and a
$2.3 million increase in general and administrative expenses, partially offset by a $16.0 million increase in voyage revenue, a $3.0 million decrease in vessel operating expenses
and a $2.9 million decrease in the provision for income taxes.

Liquidity and Capital Resources

Operating Cash Flows

Net cash provided by operating activities was $27.2 million for the year ended December 31, 2004, compared to $10.6 million for the year
ended December 31, 2003. The increase of $16.6 million resulted primarily from increased net voyage revenue, partially offset by increases in vessel operating and general and
administrative expenses. Net cash provided by operating activities was $10.7 million for 2002 ($8.9 million for the 2002 Pre-Acquisition Period and $1.8 million for
2002 Post-Acquisition Period). Net cash provided by operating activities was significantly higher than net income in 2004, 2003 and the 2002 Post-Acquisition Period because
depreciation and amortization increased significantly following the acquisition of the six ITBs from Hess in September 2002 due to the higher value attributable to the six ITBs on our books
compared to the books of the Catug Group, as well as the acquisition and drydocking of theChemical Pioneerin 2003. In previous years, Hess had written
down the value of the ITBs, resulting in reduced depreciation in the 2002 Pre-Acquisition Period. Hess estimated the cost of future drydocking expenses and accrued these expenses evenly
over a five-year period. Our policy is to capitalize drydock expenditures as incurred and to amortize these costs over the vessel's drydock cycle.

Investing Cash Flows

Net cash used in investing activities totaled $34.5 million for the year ended December 31, 2004 and $1.1 million for the year ended
December 31, 2003. In May 2003, we purchased theChemical PioneerandStolt Spiritfor
$5.5 million including transaction fees. In January 2004, we sold theStolt Spirit, a damaged vessel purchased in May 2003 for a
possible reconstruction, as scrap for $2.0 million. We decided to purchase theCharlestonfor $33.0 million in April 2004 rather
than reconstruct theStolt Spirit. Additionally, we made $7.9 million of progress payments toward the construction of a new ATB scheduled for
completion in April 2006. Net cash used in investing activities totaled $179.1 million for 2002 ($18.2 million in the 2002 Pre-Acquisition Period and
$160.9 million in the 2002 Post-Acquisition Period). In the 2002 Pre-Acquisition Period, Hess purchased an ITB that it had previously been leasing. In the 2002
Post-Acquisition Period we purchased the six ITBs from Hess for $191.5 million, including transaction costs, and purchased office furniture and computers for $0.1 million. We
purchased additional office furniture for $0.4 million prior to moving into our new offices in February 2003. TheChemical Pioneerwas
drydocked in July 2003 at a capitalized cost of $12.4 million.

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The
amounts received from or paid to Hess pursuant to the Hess support agreement are not recognized as revenue or expense but are deferred for accounting purposes and will be reflected
as an adjustment to the purchase price relating to the acquisition of the ITBs from Hess at the end of the Hess support agreement. Pending such adjustment, they are included in cash flows from
investing activities as advances from Hess. Payments by Hess to us under the support agreement were $4.0 million, $5.3 million, and $2.1 million for the years ended
December 31, 2004 and 2003, and the 2002 Post-Acquisition Period, respectively. For the years ended December 31, 2004 and 2003, and the 2002 Post-Acquisition
Period, five, four and two ITBs, respectively, were covered by the support agreement. One ITB is under contract with Hess at a charter rate less than the support rate; this vessel will be covered by
the support agreement upon any termination of that contract. If the rate for an ITB exceeds the support rate set forth in the support agreement, we must pay the excess to Hess to reimburse Hess for
any payments made to us by Hess under the support agreement and, once Hess has been fully reimbursed for all payments made under the support agreement, we must pay Hess 50% of any remaining excess.
Our obligation to reimburse Hess for these payments terminates upon expiration of the support agreement in September 2007.

Financing Cash Flows

Net cash provided by financing activities was $29.1 million for the year ended December 31, 2004 and net cash used in financing activities was
$4.2 million for the year ended December 31, 2003. In April 2004, we obtained $202.5 million of new financing from our amended and restated credit facility and used it to
finance the $33.0 million purchase of theCharleston, refinance $108.2 million of term
loans, repay $29.0 million of subordinated debt, distribute $15.0 million to the members of United States Shipping Master LLC, pay $6.6 million of transaction costs, pay
$0.4 million bonus to our management and provide $10.1 million of working capital. In November 2004, we used the gross proceeds from our initial public offering to pay down term
debt of $93.8 million, pay financing costs, underwriting fees, professional fees and other offering expenses, and to redeem the 899,968 common units received by United States Shipping Master
LLC in connection with the transfer of net assets to us. In addition, for the year ended December 31, 2004, we repaid $16.3 million of debt in accordance with scheduled debt
amortization. Upon completion of the initial public offering, $23.0 million of cash was retained by United States Shipping Master LLC and not contributed to the Partnership.

In
2003, we received additional member contributions of $5.9 million to purchase theChemical Pioneerand Stolt Spirit,incurred additional debt of
$15.0 million to finance the drydocking of the Chemical Pioneer and repaid $24.4 million of
debt. In 2002, we borrowed $130.0 million under a credit facility with a syndicate of banks, issued a $29.0 million subordinated note to Hess and received $40.9 million of
members' equity contributions to purchase the six ITBs from Hess. We made scheduled debt payments of $5.3 million in the 2002 Post-Acquisition Period on the term loans. The
financing activities of the Catug Group in 2002 Pre-Acquisition Period represent the consolidation of cash by Hess through the use of zero balance accounts. This resulted in increases or
decreases in Hess' investment in the Catug Group.

Oil Pollution Act of 1990

Tank vessels are subject to the requirements of OPA 90, which mandates that all non-double-hulled tank vessels operating in U.S. waters be removed
from petroleum and petroleum-based product transportation services at various times by January 1, 2015, and provides a schedule for the phase-out of the
non-double-hulled vessels based on their age and size. Under OPA 90, the phase-out dates for our vessels are as follows:GrotonandJacksonville(2012),Baltimore, Charleston, Chemical PioneerandNew
York(2013) andMobileandPhiladelphia(2014). As a result of these
requirements, these vessels will be prohibited from transporting crude oil and petroleum-based products in U.S. waters after these dates unless they are retrofitted to comply with OPA 90.

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In
order to bring our ITBs into compliance with OPA 90, at a minimum we will be required to retrofit each ITB with double-sides. We estimate that the current cost to retrofit each ITB
with double-sides will be approximately $25 million per vessel. We may elect to construct new forebodies on some or all of our ITBs instead of retrofitting them with double sides. We estimate
that the cost of constructing new forebodies will be approximately $55 million per vessel. At the time we make these expenditures, the actual cost could be higher due to inflation and other
factors. The cost of retrofitting the ITBs compared to the cost of new forebodies, market conditions, charter rates and the availability and cost of financing will be major factors in determining the
OPA 90 compliance plan that we ultimately
implement. Depending on the cost of the plan that we ultimately adopt to comply with OPA 90 phase-out requirements, the board of directors of our general partner, with approval by the
conflicts committee, may elect to increase our estimated maintenance capital expenditures, which would reduce our basic surplus and our cash available for distribution. In addition, if charter rates
decline, it may not be economical for us to retrofit one or more ITBs, in which event we would have to take them out of service, which would also reduce cash available for distribution.

We
do not expect to incur significant capital expenditures in order to bring our parcel tankers into compliance with OPA 90. Although theChemical
Pioneeris double-hulled, it is not OPA 90 compliant; however, we believe that a minor modification, which must be made by 2013, will bring theChemical
Pioneerinto compliance with OPA 90. Although theCharlestonis also not OPA 90 compliant, our intent is to seek a waiver
allowing us to carry refined petroleum products in the vessel's center tanks and non-petroleum-based products in the other tanks rather than retrofit the vessel. If the waiver is not
obtained, or under certain circumstances even if the waiver is obtained, we may not be able to transport a sufficient quantity of products that generate qualifying income, in which event we would be
required to place theCharlestonin a corporate subsidiary to avoid generating too much non-qualifying income, which could reduce cash
available for distribution.

Ongoing Capital Expenditures

Marine transportation of refined petroleum, petrochemical and commodity chemical products is a capital intensive business, requiring significant investment to
maintain an efficient fleet and to stay in regulatory compliance. Both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies require that our ITBs be
drydocked for major repairs and maintenance every five years and that we conduct a mid-period underwater survey in lieu of drydocking, and that our parcel tankers be drydocked twice every
five years. In addition, vessels may have to be drydocked in the event of accidents or other unforeseen damage. Periodically, we also make expenditures to acquire or construct additional tank vessel
capacity and/or to upgrade our overall fleet efficiency.

Two
of our six ITBs must be drydocked in 2005, an additional two in 2006 and the remaining two in 2007. We estimate that drydocking these vessels will cost approximately
$4.0 million to $6.0 million per vessel. In addition, our parcel tankers are required to be drydocked in both 2006 and 2008. We estimate drydocking of the parcel tankers will cost
approximately $3.0 million to $5.0 million per vessel. When drydocked, each of our ITBs will be out of service for approximately 45 to 55 days and each of our parcel tankers will
be out of service for approximately 35 to 50 days. At the time we drydock these vessels, the actual cost of drydocking may be higher due to inflation and other factors. In addition, vessels in
drydock will not generate any income, which will reduce our revenue and cash available for distribution.

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The following table summarizes total maintenance capital expenditures, consisting of drydocking expenditures, and expansion capital expenditures for the periods presented (in thousands):

|                                 |                                                            | U.S. Shipping Partners L.P. |        | Catug Group of
Amerada Hess
Corporation
|-------------------------------- | ---------------------------------------------------------- | --------------------------- | ------ | ---------------------------------------
|
|
|Maintenance capital expenditures |                                                            | $                           |       |                                        
|Expansion capital expenditures   |                                                            |                             | 40,930 |                                        
|                                 |                                                            |                             |        |                                        
|                                 | Total capital expenditures (including vessel acquisitions) |                             | $      | 40,930                                 
|                                 |                                                            |                             |        |                                        

Liquidity Needs

Our primary short-term liquidity needs are to pay our quarterly distributions and to fund general working capital requirements and drydocking
expenditures while our long-term liquidity needs are primarily associated with expansion and other maintenance capital expenditures. Expansion capital expenditures are primarily for the
purchase or construction of vessels, while maintenance capital expenditures include drydocking expenditures and the cost of bringing our vessels into compliance with OPA 90. Our primary sources of
funds for our short-term liquidity needs will be cash flows from operations and borrowings under our credit facility, while our long-term sources of funds will be from cash
from operations, long-term bank borrowings and other debt or equity financings.

Second Amended and Restated Credit Facility

On November 3, 2004, in connection with the closing of our initial public offering, we amended and restated our April 2004 credit facility with
Canadian Imperial Bank of Commerce, as administrative agent, to provide us with a:



In
addition, for a period of two years after the closing, we will have the option to increase, up to an additional amount not to exceed $90 million in the aggregate, in the
maximum amount available to us under the credit agreement through increases in either the term facility, revolving credit facility or both. Our exercise of this option is at the discretion of CIBC
World Markets Corp., as the sole lead arranger, and is contingent upon, among other things:



Our
obligations under the credit facility are secured by a first priority security interest, subject to permitted liens, on all our assets.

Borrowings
under our revolving credit facility are due and payable on the earlier of November 2, 2009 or the date the term facility is repaid. The $130 million term
facility matures April 30, 2010, and is required to be amortized quarterly beginning December 31, 2004 as follows: nine payments of

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$0.375 million;
four payments of $1.25 million; seven payments of $2.5 million; and two payments of $52.063 million. We will incur commitment fees of 0.50% per year on
unused portions of the revolving credit facility, 0.75% per year on the unused portion of the term facility, and 1.5% to 2.0%, depending on certain debt leverage ratios, on any outstanding letters of
credit.

We
can prepay all loans under our credit facility at any time without premium or penalty (other than customary LIBOR breakage costs). We are required to reduce all working capital
borrowings under the credit agreement to zero for a period of at least fifteen consecutive days once each twelve-month period prior to the maturity date of the revolving credit facility.

The
outstanding loans bear interest at a rate equal to, at our option, either: (1) in the case of Eurodollar loans, the sum of the LIBOR rate for loans in an amount substantially
equal to the amount of borrowing and for the period of borrowing selected by us plus a margin of (a) 2.0%, in the case of term loans, and (b) between 1.5% and 2.0% in the case of
revolving credit loans, depending on our total debt leverage ratio (as defined in the credit agreement) or (2) in the case of base rate loans, the higher of (a) the administrative
agent's prime or base rate or (b) one-half percent plus the latest overnight federal funds rate plus, in each case, a margin of (1) 1.0%, in the case of term loans and
(2) between 0.5% and 1.0%, in the case of revolving credit loans, depending on our total debt leverage ratio.

Our
credit agreement prevents us from declaring dividends or distributions if any event of default, as defined in the credit agreement, occurs or would result from such declaration. In
addition, the credit agreement contains covenants requiring us to adhere to certain financial covenants and limiting the ability of our operating company and its subsidiaries to, among other things:



If
an event of default exists under the credit agreement, the lenders will be able to terminate the revolving credit facility and accelerate the maturity of all outstanding loans, as
well as exercise other rights and remedies. Each of the following is an event of default under our credit facility:



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Contractual Obligations and Contingencies

Our contractual obligations at December 31, 2004 consisted of the following (in thousands):

|                                |  | Payments Due by Period
|------------------------------- |  | ----------------------
|
|Long-term debt(1)               |  | $                     
|ATB commitment                  |  |                       
|Non-cancelable operating leases |  |                       
|                                |  |                       
|                                |  | $                     
|                                |  |                       

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The
executive officers of U.S. Shipping General Partner LLC have entered into employment agreements with USS Vessel Management LLC, a wholly-owned subsidiary of our general partner. The
employment agreements with each of Messrs. Gridley, Gehegan, Colletti, Miller, Bergeron and Chew provide for an initial term expiring in October 2007. Each of the employment agreements
referred to above will thereafter automatically renew for successive one-year terms unless either party to such employment agreement furnishes the other 60 days' prior written
notice of its intent not to renew the agreement. The employment agreements currently provide for an aggregate base annual salary of $1,812,000. In addition, each employee will be entitled to receive
an annual bonus award based upon

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our
consolidated financial performance. If the employee's employment is terminated without cause or if the employee resigns for good reason, the employee will be entitled to:



See
"Item 11. Executive CompensationEmployment Agreements" for additional information on the employment agreements.

In
August 2004, we entered into a fixed price contract for the construction of an ATB, which is scheduled to be delivered in early 2006. The contract price for the ATB is
$45.4 million, including $0.5 million of company supervision costs. We paid $7.9 million in 2004, and will pay $31.5 million in 2005 and $6.0 million in 2006. Our
ATB construction contract provides us with options to purchase
three additional ATBs over the next 24 months at fixed prices, subject to limited exceptions. If we do not exercise any of the options, we must pay the shipyard an additional $375,000, and if
we exercise the option only for one additional ATB, we must pay the shipyard $125,000.

We
are a party to routine, marine-related claims, lawsuits and labor arbitrations arising in the ordinary course of business. All of these claims against us are substantially mitigated
by insurance, subject to deductibles ranging up to $150,000 per claim. We provide on a current basis for amounts we expect to pay.

Inflation

During the last three years, inflation has had a relatively minor effect on our financial results. Our contracts of affreightment and consecutive voyage charters
generally contain escalation clauses whereby certain cost increases, including labor and fuel, can be passed through to our customers.

Seasonality

We operate our tank vessels in some markets that have historically exhibited seasonal variations in demand and, as a result, in charter rates. Movements of clean
oil products, such as motor fuels, generally increase during the summer driving season. Movements of dirty oil products and distillates, such as heating oil, generally increase during the winter
months, while movements of asphalt products generally increase in the spring through fall months. Only our vessels operating in the spot market are subject to the effect of seasonal variations in
demand.

New Accounting Pronouncements

Financial Accounting Standards Board Interpretation No. 46-R (FIN 46),"Consolidation of Variable Interest
Entitiesan interpretation of ARB No. 51," was issued in January 2003 and addresses consolidation by business enterprises of variable interest
entities that meet certain characteristics. Based on the provisions of FIN 46, if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities and
results of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise. We adopted FIN 46 in 2004, which resulted in no
impact on the consolidated financial statements.

In
December 2004, the FASB issued SFAS No. 123(R),Share-Based Payment, which requires that compensation costs relating to
share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments used. SFAS

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No. 123(R)
is effective as of the first interim reporting period that begins after June 15, 2005. The Partnership does not believe the impact of adopting SFAS No. 123(R) will be
material.

RISK FACTORS

In addition to the other information set forth elsewhere in this report, you should carefully consider the following factors when
evaluating U.S. Shipping Partners L.P.:

Risks Inherent in Our Business

We may not have sufficient available cash to enable us to pay the minimum quarterly distribution following establishment of cash reserves and payment of fees and expenses,
including payments to our general partner.

We
may not have sufficient available cash each quarter to pay the minimum quarterly distribution. The amount of cash we can distribute on our common units principally depends upon the
amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:



In
addition, the actual amount of cash we will have available for distribution will depend on other factors such as:



The amount of cash we have available for distribution to unitholders depends primarily on our cash flow and not solely on profitability.

The amount of cash we have available for distribution depends primarily on our cash flow, including cash reserves, payments received under the Hess support
agreement and working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As
a result, we may make cash distributions during periods when we record losses and may not make cash distributions during periods when we record net income.

The
amount of available cash we need to pay the minimum quarterly distribution for four quarters on the common units, the subordinated units and the general partner interest outstanding
is approximately $25.3 million. Estimated available cash for distribution generated during 2003 and 2004 would have been sufficient to allow us to pay the full minimum quarterly distribution on
the common units, but insufficient to pay the full minimum quarterly distributions on the subordinated units during these periods.

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Our business would be adversely affected if we failed to comply with the Jones Act provisions on coastwise trade, or if those provisions were modified
or repealed.

We are subject to the Jones Act and other federal laws that restrict maritime transportation between points in the United States to vessels operating under the
U.S. flag, built in the United States, at least 75% owned and operated by U.S. citizens and manned by U.S. crews. Compliance with the Jones Act increases our operating costs. We are responsible for
monitoring the ownership of our common units and other partnership interests to ensure our compliance with the Jones Act. If we do not comply with these restrictions, we would be prohibited from
operating our vessels in U.S. coastwise trade, and under certain circumstances we would be deemed to have undertaken an unapproved foreign transfer, resulting in severe penalties, including permanent
loss of U.S. coastwise trading rights for our vessels, fines or forfeiture of the vessels. In addition, if any of our ITBs ceases to be qualified under the Jones Act, Hess will no longer be required
to make support payments in respect of that vessel under the Hess support agreement.

During
the past several years, interest groups have lobbied Congress to modify or repeal the Jones Act to facilitate foreign flag competition for trades and cargoes currently reserved
for U.S. flag vessels under the Jones Act and cargo preference laws. Foreign vessels generally have lower construction costs and generally operate at significantly lower costs than we do in the U.S.
markets, which would likely result in reduced charter rates. We believe that continued efforts will be made to modify or repeal the Jones Act and cargo preference laws currently benefiting U.S. flag
vessels. If these efforts are successful, it could result in significantly increased competition and have a material adverse effect on our business, results of operations and financial condition and
our ability to make cash distributions.

Because we must make substantial expenditures to comply with mandatory drydocking requirements for our fleet, and because these expenditures may be
higher than we currently anticipate, we may not have sufficient available cash to pay the minimum quarterly distribution in full.

Both domestic (U.S. Coast Guard) and international (International Maritime Organization) regulatory bodies require that our ITBs be drydocked for inspection and
maintenance every five years and that we conduct a mid-period underwater survey in lieu of drydocking, and that our parcel tankers be drydocked twice every five years. In addition, vessels
may have to be drydocked in the event of accidents or other unforeseen damage.

Two
of our six ITBs must be drydocked in 2005, (one in the third quarter and one in the fourth quarter), an additional two in 2006 and the remaining two in 2007. We estimate that
drydocking these vessels will cost approximately $4.0 million to $6.0 million per vessel. In addition, our parcel tankers are required to be drydocked in both 2006 and 2008. We estimate
drydocking of the parcel tankers will cost approximately $3.0 million to $5.0 million per vessel. When drydocked, each of our ITBs will be out of service for approximately 45 to
55 days and each of our parcel tankers will be out of service for approximately 35 to 50 days. At the time we drydock these vessels, the actual cost of drydocking may be higher due to
inflation and other factors. In addition, vessels in drydock will not generate any income, which will reduce our revenue and cash available for distribution.

Because
the required drydocks for the ITBs in 2010 (JacksonvilleandNew York), 2011
(GrotonandMobile) and 2012 (Baltimoreand Philadelphia)
occur near their respective mandatory phase-out dates under OPA 90, it may not be economical for us to perform the drydocks on
one or more of those vessels if we determine not to retrofit such vessel to make it OPA 90 compliant. In such event, if the ITB taken out of service is not replaced, it could have a material adverse
effect on our business, results of operations and financial condition and our ability to make cash distributions.

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The cost of bringing our fleet into compliance with OPA 90 will be significant; this may cause us to reduce the amount of our cash distributions or
prevent us from raising the amount of our cash distributions.

Under OPA 90, we will be required to phase-out the use of our vessels carrying petroleum-based products beginning in 2012 unless we retrofit these
vessels. The phase-out dates for these vessels are:GrotonandJacksonville(2012), Baltimore, Charleston, Chemical
PioneerandNew York(2013) and MobileandPhiladelphia(2014). As a result of these
requirements, these vessels will be prohibited from
transporting crude oil and petroleum-based products in U.S. waters after these dates unless they are retrofitted to comply with OPA 90.

In
order to bring our ITBs into compliance with OPA 90, at a minimum we will be required to retrofit each ITB with double-sides. We estimate that the current cost to retrofit each ITB
with double-sides is approximately $25 million per vessel. Alternatively, we may elect to construct new forebodies for one or more of our ITBs, which we estimate would cost $55 million
per vessel. At the time we make these expenditures, the actual cost could be higher due to inflation and other factors. The cost of retrofitting the ITBs compared to the cost of new forebodies, market
conditions, charter rates and the availability and cost of financing will be major factors in determining the OPA 90 compliance plan that we ultimately implement. Depending on the cost of the plan
that we ultimately adopt to comply with OPA 90 phase-out requirements, the board of directors of our general partner, with approval by the conflicts committee, may elect to increase our
estimated maintenance capital expenditures, which would reduce our basic surplus and our cash available for distribution. In addition, if charter rates decline, it may not be economical for us to
retrofit one or more ITBs, in which event we would have to take them out of service, which would have a material adverse effect on our business, results of operations and financial condition and our
ability to make cash distributions.

Furthermore,
even if we are successful in funding the OPA 90 compliance costs for our fleet, the obligation to incur and fund such costs may make it difficult for us to increase our cash
distributions per unit for the foreseeable future. Such an impact could adversely affect the trading price of our common units.

Although
theChemical Pioneeris double-hulled, it is not OPA 90 compliant; however, we believe that a minor modification that must be
made by 2013 will bring theChemical Pioneerinto compliance with OPA 90. Although theCharlestonis
also not OPA 90 compliant, our intent is to seek a waiver allowing us to carry refined petroleum products in the vessel's center tanks and non-petroleum-based products in the other tanks
rather than retrofit the vessel. If the waiver is not obtained, or under certain circumstances even if the waiver is obtained, we may not be able to transport a sufficient quantity of products that
generate qualifying income, in which event we would be required to place theCharlestonin a corporate subsidiary to avoid generating too much
non-qualifying income. A corporate subsidiary will be subject to corporate-level tax, which will reduce the cash available for distribution to us and, in turn, to you.

The amount of estimated maintenance capital expenditures our general partner is required to deduct from basic surplus each quarter is based on our
current estimates and could increase in the future.

Our partnership agreement requires our general partner to deduct from basic surplus each quarter estimated maintenance capital expenditures as opposed to actual
maintenance capital expenditures in order to reduce disparities in basic surplus caused by fluctuating maintenance capital expenditures, such as retrofitting or drydocking. Our initial annual
estimated maintenance capital expenditures for purposes of calculating basic surplus will be $17.2 million. This amount is based on our current estimates of the amounts of expenditures we will
be required to make in the future, which we believe to be reasonable. The amount of estimated maintenance capital expenditures deducted from basic surplus is subject to review and change by the board
of directors of our general partner at least once a year, with any change approved by the conflicts committee.

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In
addition, we may elect to construct new forebodies for some of our ITBs at an estimated cost of $55 million per vessel instead of retrofitting the ITB with double sides. The
cost of retrofitting the ITBs compared to the cost of constructing new forebodies, market conditions, charter rates and the availability and cost of financing will be major factors in determining
whether we elect to construct new forebodies. If and when we conclude that our plan should be to construct new forebodies, the board of directors of our general partner with the approval of our
conflicts committee will determine what portion, if any, of the incremental costs represent maintenance capital expenditures. Depending on this determination, the board of directors could increase
significantly the annual amount of our estimated maintenance capital expenditures, which would decrease our basic surplus and cash available for distribution.

Capital expenditures and other costs necessary to operate and maintain our vessels tend to increase with the age of the vessel and may also increase due
to changes in governmental regulations, safety or other equipment standards.

Capital expenditures and other costs necessary to operate and maintain our vessels tend to increase with the age of the vessel. Accordingly, it is likely that the
operating costs of our older vessels will increase. In addition, changes in governmental regulations, safety or other equipment standards, as well as compliance with standards imposed by maritime
self-regulatory organizations and customer requirements or competition, may require us to make additional expenditures. For example, if the U.S. Coast Guard or the American Bureau of
Shipping, an independent classification society that inspects the hull and machinery of commercial ships to assess compliance with minimum criteria as set by U.S. and international regulations, enacts
new standards, we may be required to make significant expenditures for alterations or the addition of new equipment. In order to satisfy any such requirement, we may be required to take our vessels
out of service for extended periods of time, with corresponding
losses of revenues. In the future, market conditions may not justify these expenditures or enable us to operate our older vessels profitably during the remainder of their economic lives.

If we are unable to fund our capital expenditures, we may not be able to continue to operate some of our vessels, which would have a material adverse
effect on our business and our ability to pay the minimum quarterly distribution.

In order to fund our capital expenditures, we may be required to incur borrowings or raise capital through the sale of debt or equity securities. Our ability to
access the capital markets for future offerings may be limited by our financial condition at the time of any such offering as well as by adverse market conditions resulting from, among other things,
general economic conditions and contingencies and uncertainties that are beyond our control. Our failure to obtain the funds for necessary future capital expenditures would limit our ability to
continue to operate some of our vessels and could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions. Even if we
are successful in obtaining such funds, however, the terms of such financings could limit our ability to pay cash distributions to unitholders.

A decline in demand for refined petroleum, petrochemical and commodity chemical products, particularly in the coastal regions of the United States, or a
decrease in the cost of importing refined petroleum products, could cause demand for U.S. flag tank vessel capacity and charter rates to decline, which would decrease our revenues, profitability and
cash available for distribution.

The demand for U.S. flag tank vessel capacity is influenced by the demand for refined petroleum, petrochemical and commodity chemical products and other factors
including:



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Any
of these factors could adversely affect the demand for U.S. flag tank vessel capacity and charter rates. Any decrease in demand for tank vessel capacity or decrease in charter rates could have a
material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.

The
demand for U.S. flag tank vessel capacity is also influenced by the cost of importing refined petroleum products. Historically, charter rates for vessels qualified to participate in
the coastwise trade under the Jones Act have been higher than charter rates for foreign flag vessels because of the higher construction and operating costs of U.S. flag vessels due to the Jones Act
requirements that such vessels must be built in the United States and manned by U.S. crews. Therefore, it has historically been cheaper for certain areas of the United States, such as the northeastern
United States, to import refined petroleum products than to obtain them from U.S. refineries. International shipping rates can influence the amount of refined petroleum products imported into the
United States. If the cost of foreign shipping of imported refined petroleum products, which is currently at historically high levels, decreases, charter rates for foreign flag vessels may decline,
making it cheaper to import refined petroleum products to other regions of the East Coast and the West Coast to meet increasing demand. If this were to occur, demand for our ITBs and charter rates
could decrease, which could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.

The
demand for U.S. flag tank vessel capacity and charter rates are currently increasing as vessels are being phased-out of service under OPA 90. If the existing trend
reverses due to changes under the Jones Act or otherwise, demand for our tankers and charter rates could decrease, which could adversely affect our business.

Marine transportation has inherent operating risks, and our insurance may not be adequate to cover our losses.

Our vessels and their cargoes are at risk of being damaged or lost because of events such as:



All
of these hazards can result in death or injury to persons, loss of property, environmental damages, delays or rerouting. If one of our vessels were involved in an accident with the potential risk
of environmental contamination, the resulting media coverage could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash
distributions.

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We
carry insurance to protect against most of the accident-related risks involved in the conduct of our business. Nonetheless, risks may arise against which we are not adequately
insured. For example, a catastrophic spill could exceed our insurance coverage and have a material adverse effect on our operations. In addition, we may not be able to procure adequate insurance
coverage at commercially reasonable rates in the future, and we cannot guarantee that any particular claim will be paid. In the past, new and stricter environmental regulations have led to higher
costs for insurance covering environmental damage or pollution, and new regulations could lead to similar increases or even make this type of insurance unavailable. Furthermore, even if insurance
coverage is adequate to cover our losses, we may not be able to timely obtain a replacement ship in the event of a loss.

We
do not carry loss-of-hire insurance, which covers the loss of revenue during extended vessel off-hire periods, such as for unscheduled drydocking
due to damage to the vessel from accidents. Accordingly, any loss of a vessel or extended vessel off-hire, due to accident or otherwise, could have a material adverse effect on our
business, results of operations and financial condition and our ability to make cash distributions. Please read "We have a limited number of vessels, and any loss of use of a vessel could
adversely affect our results of operation."

Because we obtain some of our insurance through protection and indemnity associations, we may also be subject to calls, or premiums, in amounts based
not only on our own claim records, but also the claim records of all other members of the protection and indemnity associations.

We may be subject to calls, or premiums, in amounts based not only on our claim records but also the claim records of all other members of the protection and
indemnity associations through which we receive insurance coverage for tort liability, including pollution-related liability. Our payment of these calls could result in significant expenses to us,
which could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.

The failure or inability of Hess to make support payments could adversely affect our business and cash available for distribution.

In connection with our purchase of six ITBs from Hess in September 2002, Hess agreed that if the contract rate for a charter of any of the vessels we
acquired was less than the rate specified in our support agreement with Hess, Hess would, subject to specified limited exceptions, pay us the difference between the two rates. During 2004 and 2003,
Hess made support payments to us aggregating $4.0 million and $5.3 million, respectively. If for any reason Hess is unable or fails to make any payments due to us under the support
agreement, it could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.

In
addition, if we enter into charters of our ITBs with companies having specified investment grade credit rating, the charter rate is equal to or higher than the rate specified in the
support agreement and certain other conditions are met, then the support agreement is not applicable to those charters even if the charterer subsequently fails to make payments under the charter.

In
the event the charter rates we receive at any time during the term of the agreement on the ITBs exceed the Hess support rate, then we must pay such excess amounts to Hess until we
have repaid Hess for all prior support payments previously made by Hess to us, and then we must share 50% of any additional excess amount with Hess. The aggregate amount of all support payments made
by Hess to us through December 31, 2004 is $11.4 million. This reimbursement and sharing obligation may reduce cash that would otherwise be available for distribution.

The termination of the Hess support agreement could adversely affect our ability to make cash distributions.

The Hess support agreement terminates on September 13, 2007. If at the time of termination the charter rates we are receiving on the six ITBs are less than
the Hess support rates, it could have a

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material
adverse effect on our business, and our cash available for distribution will be adversely affected. In addition, any support payments received from Hess will be included in the calculation of
adjusted basic surplus through the expiration of the agreement in 2007. As a result, any such payments could allow 25% of the subordinated units to become eligible for early conversion into common
units on December 31, 2007 even if we are not able to earn and pay the minimum quarterly distribution on all common units after termination of the Hess support agreement.

We rely on a limited number of customers for a significant portion of our revenues. The loss of any of these customers could adversely affect our
business and operating results.

The portion of our revenues attributable to any single customer changes over time, depending on the level of relevant activity by the customer, our ability to
meet the customer's needs and other factors, many of which are beyond our control. In 2004 and 2003, BP accounted for 27% and 52% of our revenues, respectively, Shell accounted for 20% and 23% of our
revenues, respectively, and Hess accounted for 12% and 15% of our revenues, respectively. If we were to lose any of these customers or if any of these customers significantly reduced its use of our
services, our business and operating results could be adversely affected. Revenues received from Hess exclude payments under the support agreement.

We may not be able to renew our long-term contracts when they expire.

We have contracts with Dow Chemical, ExxonMobil, Koch Industries, Lyondell Chemical and Shell with specified minimum cargo requirements that will, in aggregate,
account for approximately 74% of the anticipated usable capacity of theCharlestonthrough July 2007 and 75% of the anticipated usable capacity
of theChemical Pioneerthrough February 2007.

These
arrangements may not be renewed, or if renewed, may not be renewed at similar rates. Under the Hess support agreement, we are assured of specified minimum charter rates for our
ITBs through September 13, 2007. We may not be able to obtain charter rates for the ITBs equal to or greater than the rates provided in the Hess support agreement following expiration of the
Hess support agreement. If we are unable to obtain new charters at rates equivalent to those received under the old contracts or under the Hess support agreement, it could have a material adverse
effect on our business, results of operations and financial condition and our ability to make cash distributions.

We have a limited number of vessels, and any loss of use of a vessel could adversely affect our results of operations.

We currently own six ITBs and two parcel tankers. Four of our ITBs and both parcel tankers are under long-term contracts. In the event any of our ITBs
or parcel tankers has to be taken out of service for more than a couple of days, we may be unable to fulfill our obligations under these long-term contracts with our remaining vessels. If
we are unable to fulfill such obligations, we would have to contract with a third-party for use of a vessel, at our expense, to transport the charterer's products, which might not be possible on
acceptable terms or at all, or default under the contract, which would allow the charterer to terminate the contract. We will not receive any compensation under the Hess support agreement for ITBs
taken out of service for repairs and maintenance.

Also,
if our ATB under construction is not completed by the scheduled due date, we may be unable to fulfill our obligations under the long-term contracts we have arranged for
the ATB with our remaining parcel tankers. If we are unable to fulfill such obligations, we would have to contract with a third party for use of a vessel, at our expense, to transport the charterer's
products, which may not be possible on acceptable terms or at all, or default under the contract, which would allow the charterer to terminate the contract.

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In addition, when we acquired theCharlestonfrom ExxonMobil in May 2004, we agreed to transport cargo for ExxonMobil generally
transported by theS/R Wilmingtonwhile such vessel was in drydock in 2004, and to use our best efforts to cover all of ExxonMobil's cargo
transportation requirements that would have been covered by theS/R Wilmingtonduring future drydocks of that vessel. This obligation will require us to
charter in a vessel to either cover our obligations to ExxonMobil or our other charterers if we use one of our existing parcel tankers to cover our obligations to ExxonMobil. We may not be able to
charter in a vessel at rates less than our charter rates, or at all, which could result in our defaulting under one or more of our charter arrangements.

We
rely exclusively on the revenues generated from our marine transportation business. Due to our lack of asset diversification, an adverse development in this business would have a
significantly greater impact on our business, financial condition and results of operations than if we maintained and operated more diverse assets.

Increased competition in the domestic tank vessel industry could result in reduced profitability and loss of market share for us.

Contracts for our vessels are generally awarded on a competitive basis, and competition in the markets we serve is intense. The most important factors determining
whether a contract will be awarded include:



Some
of our competitors may have greater financial resources and larger operating staffs than we do. As a result, they may be able to make vessels available more quickly and efficiently,
transition to double-hulled vessels more rapidly and withstand the effects of declines in charter rates for a longer period of time. They may also be better able to address a downturn in the domestic
demand for refined petroleum, petrochemical or commodity chemical products. As a result, we could lose customers and market share to these competitors.

We
also face competition from refined petroleum product pipelines. Long-haul transportation of refined petroleum products is generally less costly by pipeline than by tank
vessel. The construction of new pipeline segments to carry petroleum products into our markets, including pipeline segments that connect with existing pipeline systems, the expansion of existing
pipelines and the conversion of existing non-refined petroleum product pipelines, could adversely affect our ability to compete in particular locations.

Our
transportation of petrochemical and commodity chemical products faces intense competition from railroads, which we estimate transport approximately two-thirds of all
petrochemical and commodity chemical products. The cost of transporting these products by rail is generally higher than the cost of marine transportation, and any decrease in rail rates could
adversely affect the amount of petrochemical and commodity chemical products we carry.

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Delays or cost overruns in the construction of a new vessel or the retrofit or drydock maintenance of existing vessels could adversely affect our
business. Cash flows from new or retrofitted vessels may not be immediate or as high as expected.

We anticipate retrofitting our ITBs with double-sides or constructing new double-hulled forebodies in order to allow our ITBs to continue to transport refined
petroleum products following their scheduled phase-out dates under OPA 90. We are also constructing a new ATB and may in the future construct other new vessels. In addition, each of our
vessels must undergo mandatory drydocking for major repair and maintenanceevery five years, in the case of our ITBs, with a mid-period underwater survey in lieu of drydocking,
and twice every five years, in the case of our parcel tankers. These projects will be subject to the risk of delay or cost overruns caused by the following:



Significant
delays could have a material adverse effect on expected contract commitments for new or modified vessels and our future revenues and cash flows. In addition, significant
delays could allow a charterer to cancel the charter or require us to charter additional vessels to meet our contractual obligations. Furthermore, customer demand for new or modified vessels may not
be as high as we currently anticipate and, as a result, our business, results of operations and financial condition and our ability to make cash distributions may be adversely affected.

There
is limited availability in U.S. shipyards for drydocking a vessel. As a result, the costs of performing drydock maintenance in the United States are significantly higher than they
are overseas. Furthermore, U.S. shipyards may not have available capacity to perform drydock maintenance on our vessels at the times they require drydock maintenance, particularly in the event of an
unscheduled drydock due to accident or other damage, in which event we will be required to have the work performed in an overseas shipyard. This may result in the vessel being off-hire,
and therefore not earning any revenue, for a longer period of time because of the time required to travel to and from the overseas shipyard.

Our purchase of existing vessels involves risks that could adversely affect our results of operations.

Our fleet renewal and expansion strategy includes the acquisition of existing vessels as well as the construction of new vessels. Unlike newly built vessels,
existing vessels typically do not carry warranties with respect to their condition. While we generally inspect any existing vessel prior to purchase, such an inspection would normally not provide us
with as much knowledge of its condition as we would possess if the vessel had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to
predict and may be more substantial than for vessels we have operated since they were built. These costs could have a material adverse effect on our business, results of operations and financial
condition and our ability to make cash distributions.

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We may not be able to grow or effectively manage our growth.

A principal focus of our strategy is to continue to grow by expanding our business. Our future growth will depend upon a number of factors, some of which we can
control and some of which we cannot. These factors include our ability to:



A
deficiency in any of these factors would adversely affect our ability to achieve anticipated growth in the levels of cash flows or realize other anticipated benefits. In addition,
competition from other buyers could reduce our acquisition opportunities or cause us to pay a higher price than we might otherwise pay.

The
process of integrating acquired vessels into our operations may result in unforeseen operating difficulties, may absorb significant management attention and may require significant
financial resources that would otherwise be available for the ongoing development and expansion of our existing operations. Future acquisitions could result in the incurrence of additional
indebtedness and liabilities that could have a material adverse effect on our financial condition and results of operations. Further, if we issue additional common units, your interest in the
partnership will be diluted and distributions to you may be reduced.

We are subject to complex laws and regulations, including environmental regulations, which can adversely affect the cost, manner or feasibility of doing
business.

Increasingly stringent federal, state and local laws and regulations governing worker health and safety, insurance requirements and the manning, construction and
operation of vessels significantly affect our operations. Many aspects of the marine transportation industry are subject to extensive governmental regulation by the U.S. Coast Guard, the International
Maritime Organization, the National Transportation Safety Board, the U.S. Customs Service and the U.S. Maritime Administration, as well as to regulation by private industry organizations such as the
American Bureau of Shipping. The U.S. Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and recommend improved safety
standards. The U.S. Coast Guard is authorized to inspect vessels at will.

Our
operations are also subject to federal, state, local and international laws and regulations that control the discharge of pollutants into the environment or otherwise relate to
environmental protection. Compliance with such laws, regulations and standards may require installation of costly equipment or operational changes. Failure to comply with applicable laws and
regulations may result in administrative and civil penalties, criminal sanctions or the suspension or termination of our operations. Some environmental laws often impose strict liability for
remediation of spills and releases of oil and hazardous substances, which could subject us to liability without regard to whether we were negligent or at fault. Under OPA 90, owners, operators and
bareboat charterers are jointly and severally strictly liable for the discharge of oil within the 200-mile exclusive economic zone around the United States. Additionally, an oil spill
could result in significant liability, including fines, penalties, criminal liability

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and
costs for natural resource damages under other federal and state laws or civil actions. The potential for these releases could increase as we increase our fleet capacity. Most states bordering on
a navigable waterway have enacted legislation providing for potentially unlimited liability for the discharge of pollutants within their waters. For more information, please read "Item 1.
BusinessRegulation."

In
order to maintain compliance with existing and future laws, we incur, and expect to continue to incur, substantial costs in meeting maintenance and inspection requirements, developing
and implementing emergency preparedness procedures, and obtaining insurance coverage or other required evidence of financial ability sufficient to address pollution incidents. These laws can:



Future
environmental requirements may be adopted that could limit our ability to operate, require us to incur substantial additional costs or otherwise have a material adverse effect on our business,
results of operations or financial condition and our ability to make cash distributions.

We depend upon unionized labor for the provision of our services. Any work stoppages or labor disturbances could disrupt our business.

All of our seagoing personnel, including our tank vessel captains, are employed under contracts with the Seafarers' International Union, in the case of our
non-officer personnel, and the American Maritime Officers union, in the case of vessel officers, that expire in 2007. Any work stoppages or other labor disturbances could have a material
adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.

Our employees are covered by federal laws that may subject us to job-related claims in addition to those provided by state laws.

All of our seagoing employees are covered by provisions of the Jones Act and general maritime law. These laws typically operate to make liability limits
established by state workers' compensation laws inapplicable to these employees and to permit these employees and their representatives to pursue actions against employers for job-related
injuries in federal courts. Because we are not generally protected by the limits imposed by state workers' compensation statutes, we have greater
exposure for claims made by these employees as compared to employers whose employees are not covered by these provisions.

We depend on key personnel for the success of our business and some of those persons face conflicts in the allocation of their time to our business.

We depend on the services of our senior management team and other key personnel. The loss of the services of any key employee could have a material adverse effect
on our business, financial condition and results of operations. We may not be able to locate or employ on acceptable terms qualified replacements for senior management or key employees if their
services were no longer available. We currently do not carry any key man insurance on any of our employees.

The
employment agreements of Messrs. Calvin Chew, Paul Gridley and Jeff Miller, our executive vice president, chairman and chief executive officer and vice
presidentchartering, respectively, only

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require
them to spend a majority of their business time in managing our operations. Messrs. Chew, Gridley and Miller currently own and operate two Jones Act barges that have been transporting
caustic soda and calcium chloride under contracts with third parties, and are permitted to acquire and operate additional tank barges of less than 15,000 deadweight tons under specified circumstances
in the transportation of chemical products other than petroleum or petroleum products. Messrs. Chew, Gridley and Miller may face conflicts regarding the allocation of their time between our
business and their barge business. If any of Messrs. Chew, Gridley and Miller were to spend less time in managing our business and affairs than they do currently, our business, results of
operations and financial condition and our ability to make cash distributions may be adversely affected. Please read "Risks Inherent in an Investment in UsThe members of
United States Shipping Master LLC, including our executive officers, and their affiliates may engage in activities that compete directly with us" and "Item 11. Executive
CompensationEmployment Agreements."

Terrorist attacks have resulted in increased costs and any new attacks could disrupt our business.

Heightened awareness of security needs after the terrorist attacks of September 11, 2001 have caused the U.S. Coast Guard, the International Maritime
Organization and the states and local ports to adopt heightened security procedures relating to ports and vessels. Complying with these procedures, as well as the implementation of security plans for
our vessels required by the Maritime Transportation Security Act of 2002, have increased our costs of security.

Any
future terrorist attacks could disrupt harbor operations in the ports in which we operate, which would disrupt our operations and result in lost revenue. The long-term
impact that terrorist attacks and the threat of terrorist attacks may have on the petroleum industry in general, and on us in particular, is not known at this time. Uncertainty surrounding continued
hostilities in the Middle East or other sustained military campaigns may affect our operations in unpredictable ways, including disruptions of petroleum supplies and markets, and the possibility that
infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror.

Changes
in the insurance markets attributable to terrorist attacks may make certain types of insurance more difficult for us to obtain. Moreover, the insurance that may be available to
us may be significantly more expensive than our existing insurance coverage. Instability in the financial markets as a result of terrorism or war could also affect our ability to raise capital.

Changes in international trade agreements could affect our ability to provide marine transportation services at competitive rates.

Currently, vessel trade or marine transportation between two ports in the United States, generally known as maritime cabotage or coastwise trade, is subject to
U.S. laws, including the Jones Act, that restrict maritime cabotage to U.S. flag vessels qualified to engage in U.S. coastwise trade. Additionally, the Jones Act restrictions on the provision of
maritime cabotage services are subject to certain exceptions under certain international trade agreements, including the General Agreement on Trade in Services and the North American Free Trade
Agreement. If maritime cabotage services were included in the General Agreement on Trade in Services, the North American Free Trade Agreement or other international trade agreements, or if the
restrictions contained in the Jones Act were otherwise altered, the transportation of maritime cargo between U.S. ports could be opened to foreign-flag or foreign-manufactured vessels.
Because foreign vessels may have lower construction costs and operate at significantly lower costs than we do in U.S. markets, this could significantly increase competition in the coastwise trade,
which could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.

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Risks Inherent in an Investment in Us

Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to
the detriment of our unitholders.

United States Shipping Master LLC currently indirectly owns the 2% general partner interest and directly owns a 49% limited partner interest in us and owns and
controls our general partner. Conflicts of interest may arise between our general partner and its affiliates, on the one hand, and us and our unitholders, on the other hand. As a result of these
conflicts, our general partner may favor its own interests and the interests of its affiliates over the interests of our unitholders. These conflicts include, among others, the following situations:



Our partnership agreement limits our general partner's fiduciary duties to unitholders and restricts the remedies available to unitholders for actions
taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For
example, our partnership agreement:



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In
order to become a limited partner of our partnership, a common unitholder is required to agree to be bound by the provisions in the partnership agreement, including the provisions
discussed above.

Even if unitholders are dissatisfied, they cannot initially remove our general partner without its consent.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability
to influence management's decisions regarding our business. Unitholders will have no right to elect our general partner or its board of directors on an annual or other continuing basis. The board of
directors of our general partner is chosen by United States Shipping Master LLC, which is controlled by Sterling/US Shipping L.P. Sterling/US Shipping L.P. has the right to designate a majority of the
directors of United States Shipping Master LLC and thus indirectly has the right to designate all the directors of our general partner. Please read "Item 13. Certain Relationships and Related Party
TransactionsUnited States Shipping Master Voting Arrangement."

Furthermore,
if the unitholders are dissatisfied with the performance of our general partner, they will have limited ability to remove our general partner. The vote of the holders of at
least 662/3% of all outstanding common and subordinated units voting together as a single class is required to remove our
general partner. Accordingly, the unitholders are currently unable initially to remove our general partner without its consent because United States Shipping Master LLC owns sufficient units to be
able to prevent the general partner's removal. Also, if our general partner is removed without cause during the subordination periods and units held by our general partner and its affiliates are not
voted in favor of that removal, all remaining subordinated units will automatically be converted into common units and any existing arrearages on the common units will be extinguished. A removal of
our general partner under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would
otherwise have continued until we had met certain distribution and performance tests.

Cause
is narrowly defined in our partnership agreement to mean that a court of competent jurisdiction has entered a final, non-appealable judgment finding our general partner
liable for actual fraud, gross negligence or willful or wanton misconduct in its capacity as our general partner. Cause does not include most cases of charges of poor management of the business, so
the removal of our general partner during the subordination periods because of the unitholders' dissatisfaction with our general partner's performance in managing our partnership will most likely
result in the termination of the subordination periods.

We may issue additional common units without your approval, which would dilute your ownership interests.

While any class A subordinated units remain outstanding, without the approval of our unitholders, our general partner may cause us to issue up to 3,449,984
additional common units for any purpose

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and
a further 1,149,995 common units to fund the construction of capital improvements. Our general partner may also cause us to issue an unlimited number of additional common units or other equity
securities of equal rank with the common units, without unitholder approval, in a number of circumstances such as:



In
addition, while any class A subordinated units remain outstanding we can issue equity securities other than common units that contain terms providing for the conversion of
those securities into common units upon the receipt of unitholder approval. The terms of the securities may entitle the holders to receive distributions in excess of the amount distributed to each
common unit if our unitholders do not approve the conversion by a certain date, thus providing incentive to our unitholders to approve the conversion.

The
issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:



Once
no class A subordinated units remain outstanding, we may issue an unlimited number of limited partner interests of any type without the approval of our unitholders. Our
partnership agreement does not give our unitholders the right to approve our issuance of equity securities ranking junior to the common units at any time.

Our partnership agreement currently limits the ownership of our partnership interests by individuals or entities that are not U.S. citizens. This
restriction could limit the liquidity of our common units.

In order to ensure compliance with Jones Act citizenship requirements, the board of directors of our general partner has adopted a requirement that at least 85%
of our partnership interests must be held by U.S. citizens. This requirement may have an adverse impact on the liquidity or market value of our common units, because holders will be unable to sell
units to non-U.S. citizens. Any purported transfer of common units in violation of these provisions will be ineffective to transfer the common units or any voting, dividend or other rights
in respect of the common units.

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Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, but not the obligation,
which it may assign to any of its affiliates or to us, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current
market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a
sale of your units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is
no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right. If our general partner exercised its limited call
right, the effect would be to take us private and, if the units were
subsequently deregistered, we would no longer be subject to the reporting requirements of the Securities Exchange Act of 1934.

Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

Our
partnership agreement restricts unitholders' voting rights by providing that any units held by a person that owns 20% or more of any class of units then outstanding, other than our
general partner, its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter. The
partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the
unitholders' ability to influence the manner or direction of management.

Our debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

We
have a significant amount of debt. At December 31, 2004, our consolidated indebtedness was $99.6 million, consisting of term loan obligations under our credit facility.
In addition, we will have capacity to borrow an additional $170.0 million under our credit facility. We have the ability to incur additional debt, subject to limitations in our credit facility.
Our level of indebtedness could have important consequences to us, including the following:



Our
ability to service our indebtedness will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and
financial,

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business,
regulatory and other factors, some of which are beyond our control. If our operating results are not sufficient to service our current or future indebtedness, we will be forced to take
actions such as reducing distributions, reducing or delaying our business activities, acquisitions, investments and/or capital expenditures, selling assets, restructuring or refinancing our
indebtedness, or seeking additional equity capital or bankruptcy protection. We may not be able to effect any of these remedies on satisfactory terms, or at all.

Our credit facility contains operating and financial restrictions which may restrict our business and financing activities.

The operating and financial restrictions and covenants in our credit facility and any future financing agreements could adversely affect our ability to finance
future operations or capital needs or to engage, expand or pursue our business activities. For example, our credit facility restricts our ability to:



Our
ability to comply with the covenants and restrictions contained in our debt instruments may be affected by events beyond our control, including prevailing economic, financial and
industry conditions. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we breach any of the restrictions, covenants, ratios or tests in
our debt agreements, a significant portion of our indebtedness may become immediately due and payable, and our lenders' commitment to make further loans to us may terminate. We might not have, or be
able to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under our credit facility are secured by substantially all of our assets, and if we are unable to
repay our indebtedness under our credit facility, the lenders could seek to foreclose on such assets.

Restrictions in our credit facility limit our ability to pay distributions upon the occurrence of certain events.

Our payment of principal and interest on our debt will reduce cash available for distribution on our units. Our credit facility limits our ability to pay
distributions upon the occurrence of the following events, among others:



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Any
subsequent refinancing of our current debt or any new debt could have similar restrictions. For more information regarding our debt agreements, please read "Management's
Discussion and Analysis of Financial Conditions and Results of OperationsLiquidity and Capital ResourcesSecond Amended and Restated Credit Facility."

We can borrow money under our amended and restated credit facility to pay distributions, which would reduce the amount of revolving credit available to
operate our business.

Our partnership agreement allows us to make working capital borrowings under our amended and restated credit facility to pay distributions. Accordingly, we can
make distributions on all our units even though cash generated by our operations may not be sufficient to pay such distributions. We will be required to reduce all working capital borrowings under the
credit agreement to zero for a period of at least 15 consecutive days once each 12 month period. Any working capital borrowings by us to make distributions will reduce the amount of working
capital borrowings we can make for operating our business. For more information, please read "Management's Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital ResourcesSecond Amended and Restated Credit Facility."

Cost reimbursements due our general partner and its affiliates will reduce available cash for distribution to you.

Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur on our behalf, which
will be determined by our general partner in its sole discretion. These expenses will include all costs incurred by the general partner and its affiliates in managing and operating us, including costs
for rendering corporate staff and support services to us. All of our employees, including vessel crews, are employees of subsidiaries of our general partner. On a pro forma basis as if our initial
public offering and the related transactions had been completed on January 1, 2003, we would have reimbursed our general partner $33.3 million and $25.3 million for the years
ended December 31, 2004 and 2003, respectively. We estimate that we will reimburse our general partner $35.0 million in the year ended December 31, 2005. The reimbursement of
expenses and payment of fees, if any, to our general partner and its affiliates could adversely affect our ability to pay cash distributions to you.

You may not have limited liability if a court finds that unitholder action constitutes control of our business.

As a limited partner in a partnership organized under Delaware law, you could be held liable for our obligations to the same extent as a general partner if you
participate in the "control" of our business. Our general partner generally has unlimited liability for the obligations of the partnership, such as its debts and environmental liabilities, except for
those contractual obligations of the partnership that are expressly made without recourse to our general partner. In addition, Section 17-607 of the Delaware Revised Uniform Limited
Partnership Act provides that, under some

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circumstances,
a unitholder may be liable to us for the amount of a distribution for a period of three years from the date of the distribution. The limitations on the liability of holders of limited
partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business.

The control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the
consent of the unitholders so long as the third party satisfies the citizenship requirements of the Jones Act. Furthermore, there is no restriction in the partnership agreement on the ability of the
members of our general partner from transferring their respective membership interests in our general partner to a third party that satisfies the citizenship requirements of the Jones Act. The new
members of our general partner would then be in a position to
replace the board of directors and officers of our general partner with their own choices and to control the decisions taken by the board of directors and officers of our general partner.

The members of United States Shipping Master LLC, including our executive officers, and their affiliates may engage in activities that compete directly
with us.

Sterling/US Shipping L.P., the principal member of United States Shipping Master LLC, the other members of United States Shipping Master and their respective
partners, affiliates and the funds they manage or may manage, or management, are not prohibited from owning assets or engaging in businesses that compete directly or indirectly with us. Only United
States Shipping Master and its controlled affiliates are subject to certain noncompete provisions. In addition, Calvin Chew, Paul Gridley and Jeff Miller, our executive vice president, chairman and
chief executive officer and vice presidentchartering, respectively, own and operate two barges engaged in the transportation of chemical products. Under their employment agreements,
Messrs. Chew, Gridley and Miller are not prohibited from acquiring and operating additional tank barges of less than 15,000 deadweight tons under specified circumstances. Please read
"Risks Inherent in Our BusinessWe depend on key personnel for the success of our business and some of those persons face conflicts in the allocation of their time to our
business," "Item 11. Executive CompensationEmployment Agreements" and "Item 14. Certain Relationships and Related Party TransactionsOmnibus
AgreementNoncompetition."

The price of our units may fluctuate significantly, and you could lose all or part of your investment.

There are only 6,899,968 publicly traded common units. We do not know the extent to which investor interest will lead to the development of a trading market or
how liquid that market might be. Additionally, the lack of liquidity may result in wide bid-ask spreads, contribute to significant fluctuations in the market price of the common units and
limit the number of investors who are able to buy the common units. The market price of our common units may also be influenced by many factors, some of which are beyond our control, including:



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We will incur increased costs as a result of being a public partnership.

We became a publicly traded partnership in November 2004 and have a limited history operating as a public partnership. As a public partnership, we will
incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the
Securities and Exchange Commission and the New York Stock Exchange, has required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase
our legal and financial compliance costs and to make activities more time-consuming and costly. For example, as a result of becoming a public partnership, we are required to have three
independent directors, create additional board committees and adopt policies regarding internal controls and disclosure controls and procedures. In addition, we will incur additional costs associated
with our public partnership reporting requirements. We also
expect these new rules and regulations to make it more difficult and more expensive for our general partner to obtain director and officer liability insurance and it may be required to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for our general partner to attract and retain qualified
persons to serve on its board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the
amount of additional costs we may incur or the timing of such costs.

Tax Risks

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to entity-level taxation by
states. If the IRS were to treat us as a corporation or if we were to become subject to entity-level taxation for state tax purposes, then our cash available for distribution to you would be
substantially reduced.

The anticipated after-tax benefit of an investment in the common units depends largely on our being treated as a partnership for federal income tax
purposes. We have not requested, and do not plan to request, a ruling from the IRS on this or any other matter affecting us.

If
we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35%.
Distributions to you would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to you. Because a tax would be imposed upon us as
a corporation, our cash available for distribution to you would be substantially reduced. Thus, treatment of us as a corporation would result in a material reduction in the anticipated cash flow and
after-tax return to you, likely causing a substantial reduction in the value of the common units.

Current
law may change, causing us to be treated as a corporation for federal income tax purposes or otherwise subjecting us to entity-level taxation. For example, because of widespread
state budget deficits, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise or other forms of taxation. If any state
were to impose a tax upon us as an entity, the cash available for distribution to you would be reduced. The partnership agreement provides that if a law is enacted or existing law is modified or
interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, then the minimum quarterly
distribution amount and the target distribution amounts will be adjusted to reflect the impact of that law on us.

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We have a subsidiary that will be treated as a corporation for federal income tax purposes and subject to corporate-level income taxes.

We will conduct the operations of theChemical Pioneerthrough a subsidiary that is organized as a corporation. We
may elect to conduct additional operations through this corporate subsidiary in the future. This corporate subsidiary will be subject to corporate-level tax, which will reduce the cash available for
distribution to us and, in turn, to you. If the IRS were to successfully assert that this corporation has more tax liability than we anticipate or legislation was enacted that increased the corporate
tax rate, our cash available for distribution to you would be further reduced.

If the IRS contests the federal income tax positions we take, the market for our common units may be adversely impacted, and the costs of any contest
will be borne by our unitholders and our general partner.

We have not requested any ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes or any other matter affecting us. It
may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the
IRS may materially and adversely impact the market for our common units and the price at which they trade. In addition, the costs of any contest with the IRS will result in a reduction in cash
available for distribution to our unitholders and our general partner and thus will be borne indirectly by our unitholders and our general partner.

You may be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

You will be required to pay federal income taxes and, in some cases, state and local income taxes on your share of our taxable income, whether or not you receive
cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax liability that result from your share of our
taxable income.

Tax gain or loss on the disposition of our common units could be different than expected.

If you sell your common units, you will recognize gain or loss equal to the difference between the amount realized and your tax basis in those common units. Prior
distributions to you in excess of the total net taxable income you were allocated for a common unit, which decreased your tax basis in that common unit, will, in effect, become taxable income to you
if the common unit is sold at a price greater than your tax basis in that common unit, even if the price you receive is less than your original cost. A substantial portion of the amount realized,
whether or not representing gain, may be ordinary income to you.

Tax-exempt entities, regulated investment companies and foreign persons face unique tax issues from owning common units that may result in
adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as individual retirement accounts (known as IRAs), regulated investment companies (known as
mutual funds), and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations exempt from federal income tax, including individual
retirement accounts and other retirement plans, will be unrelated business taxable income and will be taxable to them. Recent legislation treats net income derived from the ownership of certain
publicly traded partnerships (including us) as qualifying income to a regulated investment company. However, this legislation is only effective for taxable years beginning after October 22,
2004, the date of enactment. For taxable years beginning prior to the date of enactment, very little of our income will be qualifying income to a regulated investment company. Distributions to
non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and

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non-U.S.
persons will be required to file United States federal income tax returns and pay tax on their share of our taxable income.

We will treat each purchaser of units as having the same tax benefits without regard to the units purchased. The IRS may challenge this treatment, which
could adversely affect the value of the common units.

Because we cannot match transferors and transferees of common units, we will adopt depreciation and amortization positions that may not conform with all aspects
of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax
benefits or the amount of gain from your sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns.

You will likely be subject to state and local taxes and return filing requirements as a result of investing in our common units.

In addition to federal income taxes, you will likely be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate,
inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property. You will likely be required to file state and local income tax returns and pay
state and local income taxes in some or all of these various jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We will initially conduct business
in New Jersey and New York, which impose state income taxes. We may own property or conduct business in other states or foreign countries in the future. It is your responsibility to file all federal,
state and local tax returns.

The sale or exchange of 50% or more of our capital and profits interests will result in the termination of our partnership for federal income tax
purposes.

We will be considered to have terminated for federal income tax purposes if there is a sale or exchange of 50% or more of the total interests in our capital and
profits within a 12-month period. Our termination would, among other things, result in the closing of our taxable year for all unitholders and could result in a deferral of depreciation
deductions allowable in computing our taxable income.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk is affected primarily by changes in interest rates. We are exposed to the impact of interest rate changes primarily through our
variable-rate borrowings under our credit
facility. Significant increases in interest rates could adversely affect our profit margins, results of operations and our ability to service our indebtedness. Based on our average variable interest
rate debt outstanding during 2004, a 1% change in our variable interest rates would have increased our interest expense by $0.8 million, after taking into effect the interest rate swap
agreement we had in effect during 2004 as described below.

We
utilize interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of such contracts is to minimize the risks and/or costs
associated with our variable rate debt. All derivative instruments held by us are designated as hedges and, accordingly, the gains and losses from changes in derivative fair values are recognized as
comprehensive income as required by SFAS 133. Gains and losses upon settlement are recognized in the statement of operations or recorded as part of the underlying asset or liability as
appropriate. We are exposed to credit-related losses in the event of nonperformance by counterparties to these financial instruments; however, counterparties to these agreements are major financial
institutions, and the risk of loss due to nonperformance is considered by management to be minimal. We do not hold or issue interest rate swaps for trading purposes.

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We had two open interest rate swap agreements as of December 31, 2004. The intent of these agreements is to reduce interest rate risk by swapping an unknown variable interest rate
for a fixed rate. The following is a summary of the economic terms of these agreements at December 31, 2004:

Notional amount

$
34,625,000Fixed rate paid


5.15
%Variable rate received


3.975
%Effective date


12/31/02Expiration date


12/29/06Notional amount

$
60,062,500Fixed rate paid


5.9075
%Variable rate received


3.975
%Effective date


4/19/04Expiration date


12/31/08


ITEM 8.    FINANCIAL INFORMATION AND SUPPLEMENTARY DATA

The financial statements set forth on pages F-1 to F-28 of this report are incorporated herein by reference.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING

FINANCIAL DISCLOSURE

None.

ITEM 9A.    CONTROLS AND PROCEDURES

We maintain "disclosure controls and procedures", as such term is defined under Securities Exchange Act Rule 13a-15(e), that are designed to
ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the same time periods specified in the SEC's rules and forms, and
that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. We have carried out an evaluation, as of December 31, 2004, under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation and subject to the foregoing, procedures were
effective in ensuring that material information relating to us is made known to the Chief Executive Officer and Chief Financial Officer by others within the Partnership during the period in which this
report was being prepared.

There
were no changes in our internal controls over financial reporting that occurred during the three months ended December 31, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP

US Shipping General Partner LLC, as the general partner of U.S. Shipping Partners L.P., manages our operations and activities. Our general partner is not elected
by our unitholders and will not be subject to re-election on a regular basis in the future. Unitholders will not be entitled to elect the directors of our general partner or directly or
indirectly participate in our management or operation.

Because
we are a limited partnership, the listing standards of the New York Stock Exchange do not require our general partner to have a majority of independent directors or a
nominating/corporate governance or compensation committee.

We
are managed and operated by the directors and officers of our general partner. All of our operating personnel are employees of an affiliate of our general partner.
Messrs. Gridley, Chew and Miller, our chairman and chief executive officer, executive vice president and vice president-chartering, respectively, will devote a majority of their time to
managing our business and affairs. Our remaining officers will spend all of their business time managing our business and affairs.

The
following table shows information regarding the directors and executive officers of our general partner. Directors are elected for one-year terms.

|Name                   |  | Age |  | Position with US Shipping General Partner LLC     
|---------------------- |  | --- |  | --------------------------------------------------
|Paul B. Gridley        |  | 52  |  | Chairman, Chief Executive Officer and Director    
|Joseph P. Gehegan      |  | 59  |  | President and Chief Operating Officer and Director
|Albert E. Bergeron     |  | 38  |  | Vice PresidentChief Financial Officer            
|Calvin G. Chew         |  | 60  |  | Executive Vice President                          
|Alan E. Colletti       |  | 59  |  | Vice PresidentOperations                         
|Jeffrey M. Miller      |  | 50  |  | Vice PresidentChartering                         
|Bryan S. Ganz          |  | 46  |  | Director                                          
|William M. Kearns, Jr. |  | 69  |  | Director                                          
|M. William Macey, Jr.  |  | 51  |  | Director                                          
|Douglas L. Newhouse    |  | 51  |  | Director                                          
|Ronald L. O'Kelley     |  | 59  |  | Director                                          

Our
directors hold office until the earlier of their death, resignation, removal or disqualification or until their successors have been elected and qualified. Officers serve at the
discretion of the board of directors. There are no family relationships among any of our directors or executive officers.

Paul B. Gridleyis chairman of the board of directors of our general partner and chief executive officer of our general partner and has
served as chairman and chief executive officer of United States Shipping Master LLC since it was formed in July 2002. Since June 2001, Mr. Gridley has also served as managing
member of three entities, or Barge Companies, that own and operate two barges of less than 6,000 dwt that transport non-petroleum products. From June 1998 to June 2001, he
was a private investor and a director of Marine Transport Corporation. From 1989 until its sale in 1998, Mr. Gridley was principal owner, president and vice chairman of Marine Transport
Lines, Inc., one of the largest U.S.-based owners and operators of specialized chemical and petroleum tanker vessels. Prior to the purchase of MTL in 1989, Mr. Gridley was senior vice
president in the investment banking division of Lehman Brothers, co-heading the transportation banking practice.

Joseph P. Geheganis president and chief operating officer and a director of our general partner and has served as president and chief
operating officer of United States Shipping Master LLC since September 2002, which he joined in connection with our acquisition of six ITBs from Hess. Mr. Gehegan was employed in various
capacities for Hess from 1979 to 2002, most recently serving as vice president of marine operations and commercial ship utilization. From 1972 to 1979, Mr. Gehegan

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was
employed in various capacities by Amoco, most recently as vice president of marine operations. Mr. Gehegan is a graduate of the U.S. Merchant Marine Academy and immediately following
graduation worked aboard Jones Act merchant ships as an officer for three years.

Albert E. Bergeronis vice president-chief financial officer of our general partner and has served as vice president-chief financial
officer of United States Shipping Master LLC since September 2002, which he joined in connection with our acquisition of six ITBs from Hess. Mr. Bergeron served in various capacities for
Hess from January 1996 to September 2002, including Divisional Controller of Domestic Shipping Accounting and Senior Accountant of International Exploration and Production. Prior to
joining Hess, Mr. Bergeron was a senior accountant at Iroquois Gas, a natural gas pipeline company, from 1991 until December 1995. Prior to joining Iroquois, Mr. Bergeron worked
for PricewaterhouseCoopers LLP from 1989 to 1991. Mr. Bergeron is a certified public accountant.

Calvin G. Chewis executive vice president of our general partner and has served as vice chairman and executive vice president of United
States Shipping Master LLC since it began operations in September 2002. Since June 2001, Mr. Chew has also served in various capacities with the Barge Companies. Mr. Chew
retired from Shell Oil Company in June 1998 after serving in various capacities for over 28 years, including senior management positions in their supply trading and marine organizations,
most recently as vice president-Pecten Trading.

Alan E. Collettiis vice president-operations of our general partner and has served as vice president-operations of United States Shipping
Master LLC since September 2002, which he joined in connection with our acquisition of six ITBs from Hess. Prior to joining us, Mr. Colletti served in various management capacities at
Hess from 1988, including Manager of the Marine Department and Manager
of Engineering. Prior to joining Hess, Mr. Colletti served as Vice President of Operations at Ultramarine Transport Corporation (formerly Pittston Marine) for six years. Mr. Colletti has
also served as a licensed power engineer for Public Service Electric and Gas Company, a project engineer and manager for Stone & Webster, an engineering manager for the Power Authority of the
State of New York and an attorney for Lamorte Burns. Mr. Colletti is a graduate of the U.S. Merchant Marine Academy and served for five years in the United States Merchant Marine as an engineer
officer aboard Jones Act merchant vessels. Mr. Colletti is a graduate of St. John's University School of Law and a member of the New York State Bar.

Jeffrey M. Milleris vice president-chartering of our general partner and has served as vice president-chartering of United States
Shipping Master LLC since September 2002. Prior to joining United States Shipping Master LLC, Mr. Miller was employed in various capacities for Marine Transport Lines, Inc. from
1985 to 2002, most recently serving as Vice President of Chartering. Mr. Miller is a graduate of the U.S. Merchant Marine Academy and worked aboard Jones Act merchant vessels in various
positions for ten years. Mr. Miller also serves in various capacities with the Barge Companies.

Bryan S. Ganzjoined the board of directors of our general partner in February 2005. Mr. Ganz has been president and chief
executive officer of Galaxy Tire & Wheel, Inc., a manufacturing company, since 2001 and served as chief operating officer from 1992 to 2000. Mr. Ganz founded Paramount Capital
Group, an investment advisory firm, in 1983 and served as president until 1990. Mr. Ganz is a graduate of Columbia School of Law and Georgetown University.

William M. Kearns, Jr.is a member of the board of directors of our general partner and has been a director of United States Shipping
Master LLC since September 2002. Mr. Kearns has been President of W.M. Kearns & Co., Inc., a private investment company, since 1994, chairman and co-chief
executive officer of Keefe Managers, LLC, a money management firm, since 2002, and vice chairman, Keefe Managers, Inc., a money management firm, from 1998 to 2002. Mr. Kearns was a
managing director of Lehman Brothers, an investment bank, and its predecessor firms from 1962 to 1994. Mr. Kearns is a director of Selective Insurance Group, Inc. and Transistor
Devices, Inc., a senior advisor to Proudfoot

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Consulting,
PLC, and a trustee of EQ Advisors Trust (AXA Equitable Life Insurance Company), and AXA Enterprise Funds Trust (AXA Financial).

M. William Macey, Jr.is a member of the board of directors of our general partner and has been a director of United States Shipping
Master LLC since July 2002 and is a co-founder and managing partner of Sterling Investment Partners, L.P., a private equity fund investing in middle-market companies. Prior to
co-founding Sterling Investment Partners, L.P. in December 1999, Mr. Macey was a partner and co-founder of Sterling Ventures Limited, or SVL, a company formed in
1991 to sponsor private equity investments. Prior to co-founding SVL, Mr. Macey was a managing director of Asian Oceanic Group, an international merchant bank
headquartered in Hong Kong, from 1990 to 1991. Previously, Mr. Macey was a managing director in the mergers and acquisitions group of Smith Barney, Harris Upham & Co.

Douglas L. Newhouseis a member of the board of directors of our general partner and has been a director of United States Shipping Master
LLC since July 2002 and is co-founder and managing partner of Sterling Investment Partners, L.P. Prior to co-founding Sterling Investment Partners, L.P. in
December 1999, Mr. Newhouse was a partner and co-founder of SVL. Prior to co-founding SVL in 1991, Mr. Newhouse was president of Middex Capital Corp.,
which specialized in the acquisition of middle market companies, from 1990 to 1991. Prior to his employment with Middex, Mr. Newhouse was a senior vice president in the corporate finance
department of Lehman Brothers.

Ronald L. O'Kelleyjoined the board of directors of our general partner in October 2004. Mr. O'Kelley has been chairman and
chief executive officer of Atlantic Coast Venture Investments Inc., a private investment company, since 2002. Mr. O'Kelley served as executive vice president, chief financial officer and
treasurer of State Street Corporation from 1995 to 2002, as chief financial officer at Douglas Aircraft Company from 1991 to 1995 and as chief financial officer at Rolls Royce Inc. from 1983 to
1991. He also served in senior financial positions at Citicorp from 1975 to 1983 and at Texas Instruments Incorporated from 1969 to 1975.

Meetings and Committees of the Board of Directors

US Shipping General Partner LLC's board of directors held no meetings between November 3, 2004, the date of our initial public offering, and
December 31, 2004.

Audit Committee

US Shipping General Partner LLC has a standing audit committee comprising of Messrs. Ganz, Kearns and O'Kelley. The board of directors of US Shipping
General Partner LLC has determined that Messrs. O'Kelley and Ganz are independent within the meaning of the listing standards of the New York Stock Exchange. In compliance with these standards,
the audit committee is required to have a third independent member by November 3, 2005, whom we are in the process of identifying. In addition, the board of directors has determined that
Mr. O'Kelley is an audit committee financial expert within the meaning of the regulations of the Securities and Exchange Commission.

The
primary responsibilities of the audit committee are to assist the board of directors of our general partner in overseeing (1) the integrity of our financial statements,
(2) our independent auditor's qualifications, independence, and performance, (3) reviewing procedures for internal auditing and the
adequacy of our internal accounting controls, and (4) our compliance with legal and regulatory requirements. The audit committee has the sole authority to appoint, retain, and terminate our
independent auditor, which reports directly to the audit committee.

The
audit committee has established procedures for the receipt, retention and treatment of complaints we receive regarding accounting, internal accounting controls or auditing matters
and the

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confidential,
anonymous submission by our employees of our concerns regarding questionable accounting or auditing matters.

Compensation Committee

US Shipping General Partner LLC has a standing compensation committee comprising Messrs. Kearns, Newhouse, and O'Kelley. The compensation committee, among
other tasks, determines and approves the officers' compensation and benefits.

Director Independence

The board of directors of US Shipping General Partner LLC has determined that Messrs. Ganz and O'Kelley are independent within the meaning of the listing
standards for general independence of the New York Stock Exchange. Under the listing standards, the audit committee is required to have a third independent member by November 3, 2005, whom we
are in the process of identifying. The standards for audit committee membership include additional requirements under SEC rules.

The
listing standards relating to general independence consist of both a requirement for a board determination that the director has no material relationship with the listed company and
a listing of several specific relationships that preclude independence.

Code of Business Conduct and Ethics

The board of directors of US Shipping General Partner LLC has adopted a code of business conduct and ethics for all employees, including our principal executive
officer and principal financial and accounting officer. If any amendments are made to the code or if our general partner grants any waiver, including any implicit waiver, from a provision of the code
to any of our executive officers, we will disclose the nature of such amendment or waiver on our website (www.usslp.com) or in a current report on Form 8-K.

Corporate Governance Guidelines

The board of directors of our general partner has also adopted corporate governance guidelines in accordance with the New York Stock Exchange listing
requirements.

Availability of Corporate Governance Documents

Copies of board committee charters, code of business conduct and ethics and corporate governance guidelines are available, without charge, on our website at www.usslp.comand in print upon written request to the Secretary, US Shipping General Partner LLC, 399 Thornall Street, 8th Floor, Edison,
NJ 08818.

Executive Sessions of the Board of Directors

Messrs. Ganz, Kearns, Macey, Newhouse and O'Kelley, who are non-management directors of our general partner, will meet at regularly scheduled
executive sessions without management. These meetings will be chaired by each of these directors on a rotating basis. Persons wishing to communicate with our non-management directors may
do so by writing to them at US Shipping General Partner LLC, c/o Board of Directors, 399 Thornall Street, 8th Floor, Edison, NJ 08818.

Messrs. Ganz,
and O'Kelley, who are independent, non-management directors of our general partner, will meet at least annually in executive sessions without management
and other directors. These meetings will be chaired by Mr. O'Kelley. Persons wishing to communicate with our non-management directors may do so by writing to them at US Shipping
General Partner LLC, c/o Board of Directors, 399 Thornall Street, 8th Floor, Edison, NJ 08818.

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Reimbursement of Certain Expenses to our General Partner

Our general partner does not receive any management fee or other compensation for its management of U.S. Shipping Partners L.P. Our general partner and its
affiliates are reimbursed for expenses incurred on our behalf, including crew wages and benefits, general and administrative expenses, and the compensation of employees of affiliates of our general
partner that perform services on our behalf. These expenses include all expenses necessary or appropriate to the conduct of the business of, and allocable to, U.S. Shipping Partners L.P. Our
partnership agreement provides that our general partner determine in good faith the expenses that are allocable to U.S. Shipping Partners L.P. From November 3, 2004, the date of our initial
public offering, to December 31, 2004, these reimbursed expenses totaled approximately $6.7 million.

Compliance with Section 16(a) of the Securities Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than 10% of a registered class of our
equity securities, to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Officers, directors and greater than 10% unitholders are required by SEC regulations to
furnish us with copies of all Section 16(a) forms.

Based
solely on our review of the copies of such forms we received, or representations from certain reporting persons that no Form 4s were required by those persons, we believe
that during the year ending December 31, 2004, all of our officers, directors, and greater than 10% beneficial owners complied on a timely basis with all applicable filing requirements under
Section 16(a) of the Securities Exchange Act of 1934.

Compensation of Directors

Messrs. Ganz, Kearns, and O'Kelley receive a quarterly fee of $10,000 in consideration of their services as director of our general partner. All directors
of our general partner are reimbursed for their out-of-pocket expenses in connection with their services on the board. Our officers or employees who also serve as directors and
Messrs. Macey and Newhouse do not receive additional compensation.

ITEM 11.    EXECUTIVE COMPENSATION

U.S. Shipping Partners L.P. and our general partner were formed in July 2004.

The
following table sets forth all compensation to our chief executive officer and our four other most highly compensated executive officers by our operating entities during 2004. We
refer to these executives as the "named executive officers" elsewhere in this filing.

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Summary Compensation Table

|Name and Principal Position           |                                        | Annual Salary |         | Bonus |   | All Other
Compensation(1)
|------------------------------------- | -------------------------------------- | ------------- | ------- | ----- | - | -------------------------
|Paul B. Gridley                       |                                        | $             | 319,500 |       | $ | 353,334                  
|                                      | Chairman and Chief Executive Officer   |               |         |       |   |                          
|Joseph P. Gehegan                     |                                        | $             | 356,500 |       | $ | 313,334                  
|                                      | President and Chief Operating Officer  |               |         |       |   |                          
|Alan E. Colletti                      |                                        | $             | 253,417 |       | $ | 713,333                  
|President and Chief Operating Officer |                                        |               |         |       |   |                          
|Jeffrey M. Miller                     |                                        | $             | 209,500 |       | $ | 213,333                  
|                                      | Vice PresidentChartering              |               |         |       |   |                          
|Albert E. Bergeron                    |                                        | $             | 208,250 |       | $ | 693,333                  
|                                      | Vice PresidentChief Financial Officer |               |         |       |   |                          

---

Messrs. Gridley,
Gehegan, Colletti, Miller and Bergeron received a bonus of $133,333, $93,333, $33,333, $53,333 and $33,333, respectively, in connection with our acquisition of
theCharleston, and received a
bonus of $220,000, $220,000, $680,000, $160,000 and $660,000, respectively, upon the completion of the initial public offering.

All
matters concerning executive officer compensation for 2004 were addressed by the entire board of directors of United States Shipping Master LLC. Currently, Mr. Gridley and
Mr. Gehegan are both directors of US Shipping General Partner LLC and executive officers of United States Shipping Master LLC.

None
of our operating entities granted options to any of our officers, employees or managers.

Employment Agreements

In connection with our initial public offering, USS Vessel Management, Inc., a subsidiary of our general partner, entered into amended and restated
employment agreements with each of Messrs. Gridley, Gehegan, Colletti, Miller and Bergeron, as well as Mr. Chew, our executive vice president. Each of Messrs. Gehegan, Colletti
and Bergeron is required to devote all of his business time to managing our business. Each of Messrs. Gridley, Miller and Chew are required to devote a majority of his time to managing our
business.

Under
their respective employment agreements, Messrs. Gridley, Gehegan, Colletti, Miller, Bergeron and Chew each is entitled to receive initial annual salaries of $417,000,
$389,000, $295,500, $257,000, $249,500 and $204,000, respectively, upon the closing of the initial public offering. Each of the employment agreements provides for bonuses to be paid at the discretion
of the board of directors.

The
employment agreements with each of Messrs. Gridley, Gehegan, Colletti, Miller, Bergeron and Chew provide for an initial term expiring in October 2007. Each of the
employment agreements will thereafter automatically renew for successive one-year terms unless either party to such employment agreement furnishes the other 60 days' prior written
notice of its intent not to renew the agreement.

In
the event we terminate the employment of any of Messrs. Gridley, Gehegan, Colletti, Miller, Bergeron or Chew without "justifiable cause" or we elect not to renew the employment
agreement at the end of its term, or if any of them terminate their employment for "good reason", he will be entitled to:



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If
during negotiations regarding or within two years following a change in control of our general partner or U.S. Shipping Partners L.P. the employment of any of Messrs. Gridley,
Gehegan, Colletti, Miller, Bergeron or Chew is terminated without "justifiable cause" or we elect not to renew the employment agreement at the end of its term, or if any of them terminate their
employment for "good reason", we will pay severance equal to three times his then annual salary and target bonus.

"Justifiable
cause" refers to the occurrence of one or more of the following specified events:



"Good
reason" means



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Each
of the employment agreements referred to above includes a noncompetition provision applicable:



However,
if we fail to pay severance or expense amounts to the executive as required by the employment agreement, the noncompetition provision will no longer apply.

The
employment agreements of Messrs. Chew, Gridley and Miller provide that their current engagement in the transportation of chemical products in two tank barges of less than
20,000 deadweight tons, other than transportation of petroleum or petroleum products, is not a violation of the non-compete provisions of the employment agreement as long as either
(1) he engages in such business on a continuous basis or (2) if he does not engage in such business on a continuous basis, we are not engaged in such business at the time he decides to
reenter such business. Pursuant to these provisions, Messrs. Chew, Gridley and Miller currently own and operate two Jones Act barges that transport caustic soda and calcium chloride under
contracts with third parties. In addition, Messrs. Chew, Gridley and Miller are permitted under their employment agreements to acquire and operate additional tank barges of less than 15,000
deadweight tons in the transportation of chemical products, other than transportation of petroleum or petroleum products, provided that if at any time more than 50% of the income to be generated by
such barge in a six-month period is expected to be "qualifying income," then they must offer us the opportunity to acquire such tank barge.

401(k) Plan

US Shipping General Partner LLC maintains a 401(k) Plan. The plan permits eligible employees to make voluntary, pre-tax contributions to the plan up
to a specified percentage of compensation, subject to applicable tax limitations. US Shipping General Partner LLC may make a discretionary matching contribution to the plan for each eligible employee
equal to 4% of an employee's pre-tax annual compensation up to $8,200 in 2004, subject to applicable tax limitations. Eligible employees who elect to participate in the plan are generally
vested in any matching contribution after commencement of employment with the company. The plan is intended to be tax-qualified under Section 401(a) of the Internal Revenue Code so
that contributions to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan, and so that contributions, if any, will be deductible when made.

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Long-Term Incentive Plan

US Shipping General Partner LLC adopted the U.S. Shipping Partners L.P. Long-Term Incentive Plan for employees, consultants and directors of US
Shipping General Partner LLC and employees and consultants of its affiliates who perform services for US Shipping General Partner LLC
and its subsidiaries. The long-term incentive plan provides for: restricted units, phantom units, unit options, unit appreciation rights and other unit-based awards. The
long-term incentive plan currently permits the issuance of an aggregate of 689,997 units. The plan will be administered by the compensation committee of the board of directors of US
Shipping General Partner LLC.

US
Shipping General Partner LLC's board of directors in its discretion may terminate, suspend or discontinue the long-term incentive plan at any time with respect to any
award that has not yet been granted. US Shipping General Partner LLC's board of directors also has the right to alter or amend the long-term incentive plan or any part of the plan from
time to time, including increasing the number of units that may be granted, subject to the requirements of the exchange upon which the common units are listed at that time. However, no change in any
outstanding grant may be made that would materially reduce the benefits of the participant without the consent of the participant.

Restricted Units and Phantom Units.

A restricted unit is a common unit subject to forfeiture prior to the vesting of the award. A phantom unit is a notional unit that entitles the grantee to receive
a common unit upon the vesting of the phantom unit or, in the discretion of the compensation committee, cash equivalent to the value of a common unit. The compensation committee may determine to make
grants under the plan of restricted units and phantom units to employees, consultants and directors containing such terms as the compensation committee shall determine. The compensation committee will
determine the period over which restricted units and phantom units granted to employees, consultants and directors will vest. The committee may base its determination upon the achievement of specified
financial objectives.

If
a grantee's employment, service relationship or membership on the board of directors terminates for any reason, the grantee's restricted units and phantom units will be automatically
forfeited unless, and to the extent, the compensation committee provides otherwise. Common units to be delivered in connection with the grant of restricted units or upon the vesting of phantom units
may be common units acquired by US Shipping General Partner LLC on the open market, common units already owned by US Shipping General Partner LLC, common units acquired by US Shipping General Partner
LLC directly from us or any other person or any combination of the foregoing. US Shipping General Partner LLC will be entitled to reimbursement by us for the cost incurred in acquiring common units.
Thus, the cost of the restricted units and delivery of common units upon the vesting of phantom units will be borne by us. If we issue new common units in connection with the grant of restricted units
or upon vesting of the phantom units, the total number of common units outstanding will increase. The compensation committee, in its discretion, may grant tandem distribution rights with respect to
restricted units and tandem distribution equivalent rights with respect to phantom units.

We
intend the issuance of restricted units and common units upon the vesting of the phantom units under the plan to serve as a means of incentive compensation for performance and not
primarily as an opportunity to participate in the equity appreciation of the common units. Therefore, at this time it is
not contemplated that plan participants will pay any consideration for restricted units or common units they receive, and at this time we do not contemplate that we will receive any remuneration for
the restricted units and common units.

Unit Options, Unit Appreciation Rights and Other Unit-Based Rights.

The long-term incentive plan permits the grant of options covering common units, the grant of unit appreciation rights and other awards based on
common units. A unit appreciation right is an award

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that,
upon exercise, entitles the participant to receive the excess of the fair market value of a unit on the exercise date over the exercise price established for the unit appreciation right. Such
excess may be paid in common units, cash, or a combination thereof, as determined by the compensation committee in its discretion. Other unit-based awards may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related to, common units or factors that may influence the value of common units, including convertible or exchangeable debt
securities, other rights convertible or exchangeable into common units, purchase rights for common units, awards with value and payment contingent upon performance of U.S. Shipping Partners L.P. or
business units thereof or any other factors designated by the compensation committee, and awards valued by reference to value of securities of or the performance of specified affiliates or other
business units. Cash awards, as an element of or supplement to any other award under the long term incentive plan, may also be granted. The compensation committee will be able to make grants of unit
options, unit appreciation rights and other unit-based awards under the plan to employees, consultants and directors containing such terms as the committee shall determine. Unit options
and unit appreciation rights may have an exercise price that is equal to or greater than the fair market value of the common units on the date of grant. In general, unit options and unit appreciation
rights granted will become exercisable over a period determined by the compensation committee.

Upon
exercise of a unit option (or a unit appreciation right settled in common units) or settlement of an other unit-based award in common units, US Shipping General Partner
LLC will acquire common units on the open market or directly from us or any other person or use common units already owned by US Shipping General Partner LLC, or any combination of the foregoing. US
Shipping General Partner LLC will be entitled to reimbursement by us for the difference between the cost incurred by US Shipping General Partner LLC in acquiring these common units and the proceeds
received from a participant at the time of exercise. Thus, the cost of the unit options (or a unit appreciation right settled in common units) in connection with the settlement of an other
unit-based award will be borne by us. If we issue new common units upon exercise of the unit options (or a unit appreciation right settled in common units) or settlement of an other
unit-based award in common units, the total number of common units outstanding will increase, and US Shipping General Partner LLC will pay us the proceeds it receives from an optionee upon
exercise of a unit option in connection with the settlement of an other unit-based award. The availability of unit options and unit appreciation rights is intended to furnish additional
compensation to employees, consultants and directors and to align their economic interests with those of common unitholders.

Annual Incentive Plan

US Shipping General Partner LLC has adopted the US Shipping General Partner LLC Annual Incentive Compensation Plan. The annual incentive plan is designed to
enhance the performance of our key employees by rewarding them with cash awards for achieving annual financial and operational performance objectives. The compensation committee in its discretion may
determine individual participants and payments, if any, for each fiscal year. A participant's designated level of participation, or target bonus, will be determined under criteria established or
approved by the compensation committee for that fiscal year or designated performance period. Levels of participation may vary according to a participant's position and the relative impact such
participant can have on U.S. Shipping Partner L.P.'s and/or its affiliates' operations. The amount of target bonus a participant may receive for any fiscal year, if any, will depend upon the
performance level achieved (unless waived) for that fiscal year. Awards typically will be determined after the end of the fiscal year or designated performance period. Awards will be paid in cash
annually, unless otherwise determined by the compensation committee. The compensation committee will have the discretion to reduce (but not to increase) some or all of the amount of any award that
otherwise would be payable by reason of the satisfaction of the applicable performance targets; provided, however, that the exercise of such discretion with respect to one participant may not be used
to increase the amount of any award otherwise payable to another

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participant.
The termination of a participant's employment for any reason prior to payout of an award under the annual incentive plan will result in the participant's forfeiture of any such award,
unless and to the extent waived by the compensation committee. The board of directors of US Shipping General Partner LLC may amend or terminate the annual incentive plan at any time. We will reimburse
US Shipping General Partner LLC for payments and costs incurred under the plan.

Unit Purchase Plan

We have adopted a unit purchase plan for our employees. The number of common units initially available for purchase under this plan is 250,000. The unit purchase
plan is intended to serve as a means of encouraging participants to invest in common units and to encourage participants to devote their best efforts to the business of the partnership. We will pay
the brokerage commissions, transfer taxes and other costs and expenses of the plan. All common units acquired under the plan will be subject to a one-year holding period from the date of
purchase. Notwithstanding the foregoing, participants may sell common units acquired under the unit purchase plan at any time, subject to applicable law or contractual restriction. However, if a
participant sells or otherwise disposes of his common units during this one-year holding period, the participant will thereafter be precluded from participating in the unit purchase plan
until the first unit purchase period following
the first anniversary of the date of the pledge, transfer, sale or other distribution of common units. The plan is administered by the compensation committee of the board of directors of our general
partner. The plan may be terminated at any time by the board of directors of our general partner and will automatically terminate when all of the available common units under the plan have been
purchased. The plan may be amended from time to time by the board of directors of our general partner, subject to unitholder approval if required.

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ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of common units of U.S. Shipping Partners L.P. of (i) beneficial owners of 5% or more of such
units, (ii) each director and named executive officer of US Shipping General Partner LLC and (iii) all directors and executive officers as a group. Unless otherwise indicated, the
address of all persons and entities listed below is c/o U.S. Shipping Partners L.P., 399 Thornall Street, 8th Floor, Edison, New Jersey 08837.

|Name of Beneficial Owner                                                                                   |  | Common
Units |  | Percentage of
Common Units |   | Subordinated
Units |  | Percentage of Total
Subordinated Units |   | Percentage of
Total Common and
Subordinated Units |  
|---------------------------------------------------------------------------------------------------------- |  | ------------ |  | -------------------------- | - | ------------------ |  | -------------------------------------- | - | ------------------------------------------------- | -
|United States Shipping Master LLC(1)                                                                       |  |             |  |                           |   | 6,899,968          |  | 100                                    | % | 50                                                | %
|Sterling/US Shipping L.P.
c/o Sterling Investment Partners L.P.
285 Riverside Avenue
Westport, CT 06880(2) |  |             |  |                           |   | 6,899,968          |  | 100                                    | % | 50                                                | %
|Neuberger Berman, Inc.
605 Third Avenue
New York, NY 10158(3)                                              |  | 661,450      |  | 9.6                        | % |                   |  |                                       |   | 4.8                                               | %
|Kayne Anderson Capital Advisors, L.P.
1800 Avenue of the Stars
Second Floor
Los Angeles, CA 90067(4)       |  | 641,700      |  | 9.3                        | % |                   |  |                                       |   | 4.7                                               | %
|Albert E. Bergeron(5)                                                                                      |  | 7,500        |  | *                          |   |                   |  |                                       |   | *                                                 |  
|Alan E. Colletti(6)                                                                                        |  | 16,000       |  | *                          |   |                   |  |                                       |   | *                                                 |  
|Bryan Ganz                                                                                                 |  | 2,500        |  | *                          |   |                   |  |                                       |   | *                                                 |  
|Joseph P. Gehegan(7)                                                                                       |  | 15,000       |  | *                          |   |                   |  |                                       |   | *                                                 |  
|Paul B. Gridley(8)                                                                                         |  | 29,300       |  | *                          |   |                   |  |                                       |   | *                                                 |  
|M. William Kearns, Jr.
40 Wantage Avenue
Branchville, NJ 07890(9)                                          |  | 10,000       |  | *                          |   |                   |  |                                       |   | *                                                 |  
|M. William Macey, Jr.
c/o Sterling Investment Partners L.P.
285 Riverside Avenue
Westport, CT 06880(10)    |  |             |  |                           |   |                   |  |                                      |   |                                                   |  
|Jeffrey M. Miller(11)                                                                                      |  | 4,000        |  | *                          |   |                   |  |                                       |   | *                                                 |  
|Douglas Newhouse
c/o Sterling Investment Partners L.P.
285 Riverside Avenue
Westport, CT 06880(12)         |  |             |  |                           |   |                   |  |                                      |   |                                                   |  
|Ronald O'Kelley                                                                                            |  | 1,000        |  | *                          |   |                   |  |                                       |   | *                                                 |  
|All directors and executive officers as a group (10 persons)(13)                                           |  | 85,300       |  | 1.2                        | % |                   |  |                                       |   | *                                                 |  

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US Shipping General Partner LLC, a wholly owned subsidiary of US Shipping Master LLC, owns a 2% general partner interest in us. The General
Partner has incentive distribution rights which represent the right to receive an increasing quarterly percentage of quarterly distributions in excess of specified amounts.

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88

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89

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ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

United States Shipping Master LLC, the owner of our general partner, owns 6,899,968 subordinated units representing a direct 49% limited partner interest in us.
In addition, our general partner owns a 2% general partner interest in us.

Distributions and Payments to Our General Partner and Its Affiliates

We expect to distribute 98% of our available cash to our unitholders, including United States Shipping Master LLC as holders of an aggregate of 6,899,968
subordinated units, and the remaining 2% of our available cash to our general partner, which is a wholly-owned subsidiary of United States Shipping Master LLC. If distributions exceed the $0.45 per
unit minimum quarterly distribution and other higher target levels, our general partner is entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest
target level. We refer to the rights to the increasing distributions as "incentive distribution rights". Please read "Cash Distribution PolicyIncentive Distribution Rights" in Item 5 of
this report. Assuming we have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units, our general partner would receive an annual distribution of
approximately $0.5 million on its 2% general partner interest and United States Shipping Master LLC would receive an annual distribution of approximately $12.4 million on its
subordinated units.

Our
general partner does not receive a management fee or other compensation for the management of our partnership. Our general partner and its affiliates are reimbursed, however, for all
direct and indirect expenses incurred on our behalf. Our general partner determines the amount of these expenses. From November 3, 2004, the date of our initial public offering, to
December 31, 2004, these reimbursed expenses totaled approximately $6.7 million.

If
our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted
into common units, in each case for an amount equal to the fair market value of those interests.

Upon
our liquidation, the partners, including our general partner, will be entitled to receive liquidating distributions according to their particular capital account balances.

Agreements Governing the Initial Public Offering

We, our general partner, our operating company and other parties entered into various documents and agreements that effected transactions, including the vesting
of assets in, and the assumption of liabilities by, us and our subsidiaries, and the application of the proceeds of our initial public offering. These agreements were not the result of arm's-length
negotiations, and they, or any of the transactions that they provide for, were not necessarily effected on terms as favorable to the parties to these

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agreements
as could have been if obtained from unaffiliated third parties. All of the transaction expenses incurred in connection with these transactions, including the expenses associated with
vesting assets into our subsidiaries, were paid from the proceeds of the initial public offering.

Omnibus Agreement

At the closing of the initial public offering, we entered into an omnibus agreement with United States Shipping Master LLC, our general partner and our operating
partnership.

Noncompetition

Under the omnibus agreement, U.S. Shipping Partners L.P. agreed, and agreed to cause its controlled affiliates to agree, not to engage, either directly or
indirectly, in the business of providing marine transportation services or any activities that generate qualifying income for federal income tax purposes. Sterling Investment Partners, L.P.,
non-management co-investors and their affiliates (other than United States Shipping Master LLC) are not prohibited from engaging in
activities in which they compete directly or indirectly with us or from owning assets or engaging in businesses that compete directly or indirectly with us.

Indemnification

Under the omnibus agreement, United States Shipping Master LLC agreed to indemnify us after the closing of the initial public offering for a period of five years
against certain environmental and toxic tort liabilities in excess of $500,000 associated with the operation of the assets before the closing date of our initial public offering. Liabilities resulting
from a change in law after the closing of our initial public offering are excluded from the environmental indemnity. There is an aggregate cap of $10 million on the amount of indemnity coverage
provided by United States Shipping Master LLC for the environmental and toxic tort liabilities.

United
States Shipping Master LLC will also indemnify us for liabilities related to:



Tax Payment Loan

Under the omnibus agreement, our general partner will lend us an amount equal to the lesser of (1) $770,000 or (2) the 2005 estimated tax liability
of our subsidiary that owns theChemical Pioneer. The loan will bear interest at the minimum applicable federal rate. The loan is due on
December 31, 2014, although we are obligated to repay the loan beginning in 2007 to the extent that the revenues less the vessel operating expenses and voyage expenses of our subsidiary that
owns theChemical Pioneerexceeds specified levels. Under the terms of our partnership agreement, the loan amounts received from our general partner are
included in the definitions of basic surplus and adjusted basic surplus. At December 31, 2004, no loan has been made.

Amendments

The omnibus agreement may not be amended without the prior approval of the conflicts committee if the proposed amendment will, in the reasonable discretion of our
general partner, adversely affect holders of our common units.

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Professional Services Agreements

Two of our subsidiaries were each parties to a professional services agreement with Sterling Investment Partners Advisors, LLC, or Sterling Advisors, an affiliate
of the principal equity owner of United States Shipping Master LLC. Messrs. Macey and Newhouse, two of the directors of our general partner, are managing members of Sterling Advisors. In the
agreements, Sterling Advisors agreed to consult with the board of managers and management of Shipping and Chemical Shipping on business and financial matters, including:



Under
the terms of the professional services agreement, we agreed to pay Sterling Advisors an annual fee of $600,000. Sterling Advisors was also entitled to specified fees in connection
with certain merger and acquisition and financing transactions. We were also required to reimburse Sterling Advisors for its reasonable travel and other direct out-of-pocket
expenses. The professional services agreements terminated on November 3, 2004, in connection with the closing of the initial public offering and upon the payment of $3.7 million to
Sterling Advisors by United States Shipping Master LLC.

Pursuant
to these agreements, we paid Sterling Advisors a transaction fee of $350,000 in 2003 in connection with the acquisition of theChemical
Pioneerand financing of that acquisition, and a transaction fee of $1,050,000 in April 2004 in connection with the refinancing of our prior credit arrangements and the
financing of the acquisition of theCharleston.

Hess Transaction

In connection with our acquisition of our six ITBs from Hess in September 2002, we paid a transaction fee of $500,000 to W.M. Kearns &
Co., Inc., a private investment company affiliated with William Kearns, one of the directors of our general partner. Additionally, in connection with the acquisition of the six ITBs, we paid a
transaction fee of $3.6 million to Sterling Advisors.

Equity Investment by Management

In December 2002, Messrs. Gridley, Gehegan, Chew, Colletti, Miller, Bergeron and Raymond Marquardt, our manager of quality, safety and
environmental, advanced funds aggregating $300,000 to a subsidiary of United States Shipping Master LLC to obtain for us an exclusivity period of several months in connection with our negotiations to
purchase theStolt Spirit. These advances were converted into membership interests of the subsidiary in proportion to the dollar amount of each
investor's investment. These membership interests were subsequently exchanged for membership interests of United States Shipping Master LLC in May 2003.

United States Shipping Master Voting Arrangement

The limited liability company agreement of United States Shipping Master LLC requires its members to vote the membership interests held by them to elect the
following persons, in addition to certain other nominees, to the board of directors of United States Shipping Master LLC: (i) up to four individuals designated by Sterling/US Shipping L.P.,
(ii) Mr. Gridley for as long as he is employed by

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United
States Shipping Master LLC as its chief executive officer and (iii) up to two other persons nominated by the board who are not affiliated with Sterling/US Shipping L.P. The limited
liability company agreement also provides that Mr. Gridley will serve as chairman of the board as long as he remains an employee of United States Shipping Master LLC or one of its subsidiaries.
During the term of the limited liability company agreement, the holders of common membership interests of United States Shipping Master LLC must vote the common membership interests held by them in
the same manner as Sterling/US Shipping L.P. votes its preferred membership interests. In addition, the limited liability company agreement requires that the persons serving as directors of United
States Shipping Master LLC be appointed as directors of our general partner.

Management Incentive Interest in Our General Partner

Our general partner is a wholly-owned subsidiary of United States Shipping Master LLC. Accordingly, the owners of United States Shipping Master LLC will receive
all distributions made by us to our general partner in respect of the general partner interests and incentive distribution rights, subject to the rights granted to the executive officers of our
general partner described below. The executive officers of our general partner will have the right to receive 10% of the distributions received by our general partner attributable to (i) the
incentive distribution rights and (ii) that portion of its 2% general partner interest attributable to distributions on our common units and subordinated units in excess of the minimum
quarterly distribution. The executive officers will only receive these amounts upon conversion of the class A subordinated units into common units, but upon such conversion they will also be
entitled to receive a "catch up" payment equal to the cumulative amount they would have received had such payments commenced in November 2004. The executive officers will receive a pro rata
share of such amounts to the extent that less than all the class A subordinated units convert into common units.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees and services rendered by PricewaterhouseCoopers LLP for the year ended December 31, 2004. Because we were formed in 2004,
no amounts are shown for the years ended December 31, 2003 and 2002.

Year ended December 31, 2004
(dollars in thousands)Audit fees(1)

$
1,069Audit-related fees(2)


105Tax fees(3)


725All other fees(4)


2Total

$
1,901


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Audit Committee Policies and Procedures for Pre-Approval of Audit and Non-Audit Services

Consistent with SEC policies regarding auditor independence, following our initial public offering, the audit committee is responsible for preapproving all audit
and non-audit services performed by the

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independent
auditor. In addition to its approval of the audit engagement, the audit committee takes action at least annually to authorize the performance by the independent auditor of several specific
types of services within the categories of audit-related and tax services. Audit-related services include assurance and related services that are reasonably related to the performance of the audit or
review of the financial statements. Authorized tax services include compliance-related services such as services involving tax filings, as well as consulting services such as tax planning, transaction
analysis and opinions. Services are subject to pre-approval of the specific engagement if they are outside the specific types of services included in the periodic approvals covering
service categories or if they are in excess of specified fee limitations. The audit committee may delegate pre-approval authority to subcommittees. During 2004, no pre-approval
requirements were waived.

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PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)    (1) Financial Statements

See "Index to Financial Statements" set forth on page F-1.

(a)    (2) Financial Statement Schedules

None.

(a)    (3) Exhibits

|Exhibit Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1            |  | Certificate of Limited Partnership of U.S. Shipping Partners L.P. (incorporated by reference to Exhibit 3.1 to the Partnership's Registration Statement on Form S-1 (Registration No. 333-118141 filed August 12,
2004).                                                                                                                                                                                                                                                                                                                                                                                                   
|3.2            |  | Amended and Restated Agreement of Limited Partnership of U.S. Shipping Partners L.P. (incorporated by reference to Exhibit 3.2 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30,
2004)                                                                                                                                                                                                                                                                                                                                                                                                 
|3.3            |  | Certificate of Formation of US Shipping General Partner LLC (incorporated by reference to Exhibit 3.3 to the Partnership's Registration Statement on Form S-1 (Registration No. 333-118141 filed August 12,
2004).                                                                                                                                                                                                                                                                                                                                                                                                         
|3.4            |  | Amended and Restated Limited Liability Company Agreement of US Shipping General Partner LLC. (incorporated by reference to Exhibit 3.4 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30,
2004)                                                                                                                                                                                                                                                                                                                                                                                         
|10.1           |  | Contribution, Conveyance and Assumption Agreement by and among United States Shipping Master LLC, US Shipping General Partner LLC, U.S. Shipping Partners L.P., U.S. Shipping Operating LLC, United States Shipping LLC,
United States Chemical Shipping LLC, USCS Chemical Chartering LLC, USS Chartering LLC, ITB Baltimore LLC, ITB Groton LLC, ITB Jacksonville LLC, ITB Mobile LLC, ITB New York LLC, ITB Philadelphia LLC, USCS Charleston LLC, and USCS Chemical Pioneer
LLC. (incorporated by reference to Exhibit 10.1 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)
|10.2*          |  | U.S. Shipping Partners L.P. Long-Term Incentive Plan. (incorporated by reference to Exhibit 10.2 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.3*          |  | U.S. Shipping Partners L.P. Annual Incentive Plan. (incorporated by reference to Exhibit 10.3 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.4           |  | Omnibus Agreement among United States Shipping Master LLC, US Shipping General Partner LLC, U.S. Shipping Operating LLC and U.S. Shipping Partners L.P. (incorporated by reference to Exhibit 10.4 to the Partnership's
Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                             
|10.5          |  | Support Agreement dated as of September 13, 2002 between Amerada Hess Corporation and USS Chartering LLC (incorporated by reference to Exhibit 10.6 to the Partnership's Registration Statement on Form S-1 (Registration No.
333-118141 filed August 12, 2004).                                                                                                                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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|10.6*  |  | Employee Unit Purchase Plan. (incorporated by reference to Exhibit 10.6 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.7   |  | Second Amended and Restated Credit Agreement, dated as of November 3, 2004, among U.S. Shipping Partners L.P., U.S. Shipping Operating LLC, ITB Baltimore LLC, ITB Groton LLC, ITB Jacksonville LLC, ITB Mobile LLC, ITB New
York LLC, ITB Philadelphia LLC, USS Chartering LLC, USCS Chemical Chartering LLC, USCS Chemical Pioneer LLC, USCS Charleston Chartering LLC, USCS Charleston LLC, USCS ATB LLC, Canadian Imperial Bank of Commerce, KeyBank National Association and the
various lenders thereto. (incorporated by reference to Exhibit 10.7 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)
|10.8*  |  | Amended and Restated Employment Agreement for Paul B. Gridley. (incorporated by reference to Exhibit 10.8 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9*  |  | Amended and Restated Employment Agreement for Joseph P. Gehegan. (incorporated by reference to Exhibit 10.9 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.10* |  | Amended and Restated Employment Agreement for Calvin G. Chew. (incorporated by reference to Exhibit 10.10 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.11* |  | Amended and Restated Employment Agreement for Alan Colletti. (incorporated by reference to Exhibit 10.11 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.12* |  | Amended and Restated Employment Agreement for Jeffrey M. Miller. (incorporated by reference to Exhibit 10.12 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                             
|10.13* |  | Amended and Restated Employment Agreement for Albert E. Bergeron. (incorporated by reference to Exhibit 10.13 to the Partnership's Quarterly Report on Form 10-Q for the period ended September 30, 2004)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|21.1   |  | List of subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|23.1   |  | Consent of Wilson Gillette & Co.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|31.1   |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|31.2   |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.1   |  | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.2   |  | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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INDEX TO FINANCIAL STATEMENTS

|U.S. SHIPPING PARTNERS L.P. (Successor to United States Shipping Master LLC)                                                                                                                   |  |     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|CONSOLIDATED FINANCIAL STATEMENTS                                                                                                                                                              |  |     
|Report of Independent Registered Public Accounting Firm                                                                                                                                        |  | F-2 
|Consolidated Balance Sheets as of December 31, 2004 and 2003                                                                                                                                   |  | F-3 
|Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2004 and 2003 and for the period July 16, 2002 (Inception) through December 31, 2002           |  | F-4 
|Consolidated Statements of Changes in Partners' Capital/Members' Equity for the years ended December 31, 2004 and 2003 and for the period July 16, 2002 (Inception) through December 31,
 2002 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004 and 2003 and for the period July 16, 2002 (Inception) through December 31, 2002                                    |  | F-6 
|Notes to Consolidated Financial Statements                                                                                                                                                     |  | F-7 
|CATUG GROUP (a Division of Amerada Hess Corporation)                                                                                                                                           |  |     
|HISTORICAL COMBINED FINANCIAL STATEMENTS                                                                                                                                                       |  |     
|Report of Independent Registered Public Accounting Firm                                                                                                                                        |  | F-21
|Combined Statements of Operations for the period January 1, 2002 through
September 12, 2002                                                                                                    |  | F-22
|Combined Statements of Owner's Net Investment for the period January 1, 2002 through September 12, 2002                                                                                        |  | F-23
|Combined Statements of Cash Flows for the period January 1, 2002 through
September 12, 2002                                                                                                    |  | F-24
|Notes to Combined Financial Statements                                                                                                                                                         |  | F-25

F-1

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Report of Independent Registered Public Accounting Firm

To
the Partners of U.S. Shipping Partners L.P.

In
our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income, changes in partners' capital/members' equity
and cash flows present fairly, in all material respects, the financial position of U.S. Shipping Partners L.P. (successor to United States Shipping Master LLC) and its subsidiaries at
December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2004 and for the period July 16,
2002 (inception) through December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers
LLP
Florham Park, New Jersey
March 8, 2005

F-2

---





U.S. Shipping Partners L.P.  (Successor to United States Shipping Master LLC)  Consolidated Balance Sheets  December 31, 2004 and 2003  (in thousands)

|                                                  |                                           | December 31,                                            |        
|------------------------------------------------- | ----------------------------------------- | ------------------------------------------------------- | -------
|
|Assets                                            |                                           |                                                         |        
|Current assets                                    |                                           |                                                         |        
|                                                  | Cash and equivalents                      |                                                         | $      
|                                                  | Restricted cash                           |                                                         |        
|                                                  | Accounts receivable, net                  |                                                         |        
|                                                  | Prepaid expenses and other current assets |                                                         |        
|                                                  |                                           |                                                         |        
|                                                  |                                           | Total current assets                                    |        
|Vessels and equipment, net                        |                                           |                                                         | 201,923
|Deferred financing costs, net                     |                                           |                                                         | 3,962  
|Other assets                                      |                                           |                                                         | 1,733  
|                                                  |                                           |                                                         |        
|                                                  | Total assets                              |                                                         | $      
|                                                  |                                           |                                                         |        
|Liabilities and Partners' Capital/Members' Equity |                                           |                                                         |        
|Current liabilities                               |                                           |                                                         |        
|                                                  | Current portion of long-term debt         |                                                         | $      
|                                                  | Accounts payable                          |                                                         |        
|                                                  | Due to affiliates                         |                                                         |        
|                                                  | Deferred revenue                          |                                                         |        
|                                                  | Accrued expenses and other liabilities    |                                                         |        
|                                                  |                                           |                                                         |        
|                                                  |                                           | Total current liabilities                               |        
|Term loan                                         |                                           |                                                         | 98,125 
|Subordinated note                                 |                                           |                                                         |       
|Advances from Hess                                |                                           |                                                         | 11,387 
|Deferred income taxes                             |                                           |                                                         | 2,944  
|Other liabilities                                 |                                           |                                                         | 207    
|                                                  |                                           |                                                         |        
|                                                  |                                           | Total liabilities                                       |        
|                                                  |                                           |                                                         |        
|Commitments and contingencies (Notes 6 and 10)    |                                           |                                                         |        
|Partners' Capital/Members' Equity                 |                                           |                                                         |        
|                                                  | Partners' Capital/Members' equity         |                                                         |        
|                                                  | Accumulated other comprehensive (loss)    |                                                         |        
|                                                  |                                           |                                                         |        
|                                                  |                                           | Total partners' capital/members' equity                 |        
|                                                  |                                           |                                                         |        
|                                                  |                                           | Total liabilities and partners' capital/members' equity |        
|                                                  |                                           |                                                         |        

The
accompanying notes are an integral part of these consolidated financial statements.

F-3

---





U.S. Shipping Partners L.P.  (Successor to United States Shipping Master LLC)  Consolidated Statements of Operations and Comprehensive Income  Years Ended December 31, 2004 and 2003 and Period July 16,
2002 (Inception)  Through December 31, 2002  (in thousands, except for per unit data)

|                                                |                                                       | Year
Ended
December 31,
2004 |         | Year Ended
December 31,
2003 |   | Period Ended
December 31,
2002 |       
|----------------------------------------------- | ----------------------------------------------------- | ---------------------------- | ------- | ---------------------------- | - | ------------------------------ | ------
|Revenues                                        |                                                       | $                            | 122,355 |                              | $ | 80,514                         |       
|                                                |                                                       |                              |         |                              |   |                                |       
|Operating expenses                              |                                                       |                              |         |                              |   |                                |       
|Vessel operating expenses                       |                                                       |                              | 47,119  |                              |   | 33,143                         |       
|Voyage expenses                                 |                                                       |                              | 20,415  |                              |   | 9,889                          |       
|General and administrative expenses             |                                                       |                              | 10,321  |                              |   | 7,153                          |       
|Depreciation and amortization                   |                                                       |                              | 23,945  |                              |   | 17,921                         |       
|                                                |                                                       |                              |         |                              |   |                                |       
|                                                | Total operating expenses                              |                              |         | 101,800                      |   |                                | 68,106
|                                                |                                                       |                              |         |                              |   |                                |       
|                                                | Operating income                                      |                              |         | 20,555                       |   |                                | 12,408
|Interest expense                                |                                                       |                              | (9,960  | )                            |   | (10,039                        | )     
|Loss on debt extinguishment                     |                                                       |                              | (6,397  | )                            |   |                               |       
|Other income                                    |                                                       |                              | 369     |                              |   | 136                            |       
|                                                |                                                       |                              |         |                              |   |                                |       
|                                                | Income (loss) before income taxes                     |                              |         | 4,567                        |   |                                | 2,505 
|Provision for income taxes                      |                                                       |                              | 3,119   |                              |   | 72                             |       
|                                                |                                                       |                              |         |                              |   |                                |       
|                                                | Net income (loss)                                     |                              |         | 1,448                        |   |                                | 2,433 
|Other comprehensive income (loss)               |                                                       |                              |         |                              |   |                                |       
|Fair market value adjustment of derivatives     |                                                       |                              | 538     |                              |   | 363                            |       
|                                                |                                                       |                              |         |                              |   |                                |       
|                                                | Comprehensive income (loss)                           |                              | $       | 1,986                        |   | $                              | 2,796 
|                                                |                                                       |                              |         |                              |   |                                |       
|General partner's interest in net income (loss) |                                                       | $                            | (107    | )                            | $ |                               |       
|Limited partners' interest:                     |                                                       |                              |         |                              |   |                                |       
|                                                | Net income (loss)                                     |                              | $       | 1,555                        |   | $                              | 2,433 
|                                                | Net income (loss) per unit- basic and diluted         |                              | $       | 0.18                         |   | $                              | 0.31  
|                                                | Weighted average units outstanding- basic and diluted |                              |         | 8,770                        |   |                                | 7,800 

The
accompanying notes are an integral part of these consolidated financial statements.

F-4

---





U.S. Shipping Partners L.P.  (Successor to United States Shipping Master LLC)    Consolidated Statements of Changes in Partners' Capital/Members' Equity    Years Ended December 31, 2004 and 2003
and  Period July 16, 2002 (Inception) Through December 31, 2002    (in thousands)

|                                                                                               |  |   |         | Partners' Capital |       |   |   |         |  
|---------------------------------------------------------------------------------------------- |  | - | ------- | ----------------- | ----- | - | - | ------- | -
|
|
|
|
|
|Beginning Balance                                                                              |  | $ |        |                   |      |   | $ |        |  
|Net (loss) for period                                                                          |  |   | (664    | )                 |      |   |   |        |  
|Fair market value adjustment of derivatives                                                    |  |   |        |                   |      |   |   |        |  
|Member contributions                                                                           |  |   | 40,850  |                   |      |   |   |        |  
|                                                                                               |  |   |         |                   |       |   |   |         |  
|Balance at December 31, 2002                                                                   |  |   | 40,186  |                   |      |   |   |        |  
|Net income                                                                                     |  |   | 2,433   |                   |      |   |   |        |  
|Fair market value adjustment of derivatives                                                    |  |   |        |                   |      |   |   |        |  
|Member contributions                                                                           |  |   | 5,850   |                   |      |   |   |        |  
|                                                                                               |  |   |         |                   |       |   |   |         |  
|Balance at December 31, 2003                                                                   |  |   | 48,469  |                   |      |   |   |        |  
|Net income for the period January 1, 2004 to November 2, 2004                                  |  |   | 6,800   |                   |      |   |   |        |  
|Member contributions                                                                           |  |   | 2       |                   |      |   |   |        |  
|Member distributions                                                                           |  |   | (15,000 | )                 |      |   |   |        |  
|Adjustment to reflect net assets not contributed to the Partnership                            |  |   | (31,690 | )                 |      |   |   |        |  
|Book value of net assets contributed to the Partnership                                        |  |   | (8,581  | )                 | 900   |   |   | 956     |  
|Proceeds from initial public public offering of common units, net of offering costs of $15,160 |  |   |        |                   | 6,900 |   |   | 138,364 |  
|Redemption of common units                                                                     |  |   |        |                   | (900  | ) |   | (18,600 | )
|Net loss for the period November 3, 2004 to December 31, 2004                                  |  |   |        |                   |      |   |   | (2,622  | )
|Fair market value adjustment of derivatives                                                    |  |   |        |                   |      |   |   |        |  
|                                                                                               |  |   |         |                   |       |   |   |         |  
|Balance at December 31, 2004                                                                   |  | $ |        |                   | 6,900 |   | $ | 118,098 |  
|                                                                                               |  |   |         |                   |       |   |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.

F-5

---





U.S. Shipping Partners L.P.  (Successor to United States Shipping Master LLC)  Consolidated Statements of Cash Flows  Years Ended December 31, 2004 and 2003 and Period July 16, 2002 (Inception)
Through December 31, 2002  (in thousands)

|                                                                                 |              | Year Ended December 31, 2004                                                                    |                                           | Year Ended December 31, 2003                        |        | Period Ended December 31, 2002 |        
|-------------------------------------------------------------------------------- | ------------ | ----------------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------ | ------------------------------ | -------
|Cash flows from operating activities                                             |              |                                                                                                 |                                           |                                                     |        |                                |        
|Net income (loss)                                                                |              | $                                                                                               | 1,448                                     |                                                     | $      | 2,433                          |        
|Adjustments to reconcile net income to net cash provided by operating activities |              |                                                                                                 |                                           |                                                     |        |                                |        
|                                                                                 |              | Depreciation of vessels and equipment, and amortization of drydock costs and deferred financing |                                           |                                                     | 24,745 |                                |        
|                                                                                 |              | Deferred income taxes                                                                           |                                           |                                                     | 2,895  |                                |        
|                                                                                 |              | Capitalized drydock costs                                                                       |                                           |                                                     |       |                                |        
|                                                                                 |              | Loss on debt extinguishment                                                                     |                                           |                                                     | 6,397  |                                |        
|                                                                                 |              | Provision for accounts receivable                                                               |                                           |                                                     | 100    |                                |        
|                                                                                 |              | Changes in assets and liabilities                                                               |                                           |                                                     |        |                                |        
|                                                                                 |              |                                                                                                 | Accounts receivable                       |                                                     |        | (10,553                        | )      
|                                                                                 |              |                                                                                                 | Prepaid expenses and other current assets |                                                     |        | (1,448                         | )      
|                                                                                 |              |                                                                                                 | Other assets                              |                                                     |        |                               |        
|                                                                                 |              |                                                                                                 | Accounts payable                          |                                                     |        | (1,785                         | )      
|                                                                                 |              |                                                                                                 | Deferred revenue                          |                                                     |        | 2,325                          |        
|                                                                                 |              |                                                                                                 | Accrued expenses and other liabilities    |                                                     |        | 3,060                          |        
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|                                                                                 |              |                                                                                                 |                                           | Net cash provided by operating activities           |        |                                | 27,184 
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|Cash flows from investing activities                                             |              |                                                                                                 |                                           |                                                     |        |                                |        
|Proceeds from sale of vessels and equipment                                      |              |                                                                                                 | 2,000                                     |                                                     |        |                               |        
|Purchase of vessels and equipment                                                |              |                                                                                                 | (41,050                                   | )                                                   |        | (5,881                         | )      
|Change in restricted cash                                                        |              |                                                                                                 | 502                                       |                                                     |        | (502                           | )      
|Advances from Hess                                                               |              |                                                                                                 | 4,007                                     |                                                     |        | 5,326                          |        
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|                                                                                 |              |                                                                                                 |                                           | Net cash (used in) investing activities             |        |                                | (34,541
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|Cash flows from financing activities                                             |              |                                                                                                 |                                           |                                                     |        |                                |        
|Member contributions                                                             |              |                                                                                                 | 2                                         |                                                     |        | 5,850                          |        
|Gross proceeds from issuance of common units                                     |              |                                                                                                 | 153,524                                   |                                                     |        |                               |        
|Redemption of common units held by the predecessor                               |              |                                                                                                 | (18,600                                   | )                                                   |        |                               |        
|Offering expenses                                                                |              |                                                                                                 | (15,160                                   | )                                                   |        |                               |        
|Proceeds from issuance of term loan                                              |              |                                                                                                 | 202,500                                   |                                                     |        | 15,000                         |        
|Repayment of debt                                                                |              |                                                                                                 | (247,250                                  | )                                                   |        | (24,375                        | )      
|Member distributions                                                             |              |                                                                                                 | (15,000                                   | )                                                   |        |                               |        
|Cash retained by the general partner                                             |              |                                                                                                 | (23,038                                   | )                                                   |        |                               |        
|Deferred financing costs                                                         |              |                                                                                                 | (7,928                                    | )                                                   |        | (694                           | )      
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|                                                                                 |              |                                                                                                 |                                           | Net cash provided by (used in) financing activities |        |                                | 29,050 
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|                                                                                 |              |                                                                                                 |                                           | Net increase in cash                                |        |                                | 21,693 
|Cash, beginning of period                                                        |              |                                                                                                 | 8,565                                     |                                                     |        | 3,226                          |        
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|                                                                                 |              |                                                                                                 |                                           | Cash, end of period                                 |        | $                              | 30,258 
|                                                                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|Supplemental disclosure of cash flow information                                 |              |                                                                                                 |                                           |                                                     |        |                                |        
|Cash paid during the year for                                                    |              |                                                                                                 |                                           |                                                     |        |                                |        
|                                                                                 | Interest     |                                                                                                 | $                                         | 9,160                                               |        | $                              | 9,472  
|                                                                                 | Income taxes |                                                                                                 |                                           | 17                                                  |        |                                | 6      
|Supplemental disclosure of noncash investing and financing activities            |              |                                                                                                 |                                           |                                                     |        |                                |        
|Retention of non-cash assets by the general partner                              |              |                                                                                                 | 8,652                                     |                                                     |        |                               |        
|Purchase of vessels and equipment financed with debt from Hess                   |              |                                                                                                 |                                          |                                                     |        |                               |        

The accompanying notes are an integral part of these consolidated financial statements.

F-6

---





U.S. Shipping Partners L.P.  (Successor to United States Shipping Master LLC)  Notes to Consolidated Financial Statements  Years Ended December 31, 2004 and 2003 and Period July 16, 2002
(Inception)  Through December 31, 2002  (dollars in thousands, except per unit data)

1.     Formation and Nature of Operations

On July 30, 2004, U.S. Shipping Partners L.P. (the "Partnership") was formed to acquire, own and operate integrated tug barge units ("ITBs") that transport
petroleum products and specialty refined petroleum and chemical product, or parcel, tankers ("Parcel Tankers") owned and operated by United States Shipping Master LLC and its subsidiaries,
(collectively, the "Predecessor"). The Predecessor has since September 2002 engaged in transportation services between ports in the United States, principally for refined petroleum products
and, to a limited extent, petrochemical and commodity chemical products. The vessels operate under the regulatory provisions of the Jones Act.

On
November 3, 2004, the Predecessor contributed assets and liabilities constituting the business of the Predecessor to the Partnership in connection with the initial public
offering of the common units representing limited partner interests in the Partnership (the "common units"). In exchange for these assets and liabilities, the Predecessor received 899,968 common units
and 6,899,968 subordinated units representing limited partner interests in the Partnership. The Partnership's general partner received a 2% general partner interest and certain incentive distribution
rights in the Partnership. Incentive distribution rights represent the right to receive an increasing percentage of cash distributions after the minimum quarterly distribution, any cumulative
arrearages on common units, and certain target distribution levels, have been achieved. The Partnership is required to distribute all of its available cash from basic surplus, as defined in the
Partnership agreement. The target distribution levels entitle the general partner to receive 15% of quarterly cash distributions in excess of $0.50 per until all unitholders have received $0.575 per
unit, 25% of quarterly cash distributions in excess of $0.575 per unit until all unitholders have received $0.70 per unit, and 50% of quarterly cash distributions in excess of $0.70 per unit.

The
transfer to the Partnership of substantially all of the assets and liabilities constituting the business of the Predecessor represented a reorganization of entities under common
control and was recorded at historical cost. The net assets transferred were $31,690 less than the total net assets of the Predecessor due to the retention by the general partner of certain net
assets, including cash of $23,038, accounts receivable totaling $7,917, fixed assets of $503, prepaid expenses of $242, accrued expenses of $1,275, affiliate receivables of $1,234 and other assets of
$31. The consolidated financial statements included herein are for the Predecessor for all periods prior to November 3, 2004.

On
September 13, 2002, pursuant to an asset purchase agreement, the Predecessor acquired certain assets of the Catug Group, a division of Amerada Hess Corporation ("Hess"), for an
aggregate purchase price, including transaction fees, of approximately $193,000. The acquisition was funded by members' contributions, long-term debt and the issuance of a note payable to
Hess for $29,000. The purchase price was allocated to the ITBs ($191,529), furniture and equipment ($99) and spare parts inventory ($1,733) at their fair values based on an independent valuation. The
fair value of the assets exceeded the purchase price; therefore, no goodwill resulted. The difference was allocated to the ITBs proportionately.

2.     Initial Public Offering

On November 3, 2004, the Partnership completed its initial public offering of 6,899,968 common units (including 899,968 common units sold upon exercise of
the underwriters' over-allotment option) at a price of $22.25 per unit. Total gross proceeds through December 31, 2004 from this sale were

F-7

---



$153,524.
Concurrent with this sale, the Partnership redeemed 899,968 common units held by the Predecessor at a cost of $18,600.

The
proceeds received by the Partnership from the offering and the use of those proceeds are summarized as follows:

Proceeds received:Sale of 6,899,968 common units at $22.25 per unit

$
153,524Use of proceeds from sale of common unitsUnderwriting and structuring fees

$
10,918Professional fees and other offering costs


4,242Repayment of term debt


93,750Redemption of 899,968 units from United States Shipping Master LLC


18,600Costs of amending and restating credit facility


1,332Working capital


24,682Total use of proceeds:

$
153,524


3.     Summary of Significant Accounting Principles

Principles of Consolidation

These consolidated financial statements are for the Partnership and its wholly-owned subsidiaries. For all periods prior to November 3, 2004, the business
was operated by the Predecessor and, therefore, the consolidated financial statements are for the Predecessor for those periods. All inter-company transactions and balances have been eliminated in
consolidation.

Cash and Cash Equivalents

The Partnership considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Revenue Recognition

The Partnership earns revenue under contracts of affreightment, spot voyage charters, consecutive voyage charters and time charters. For contracts of
affreightment, spot voyage charters and consecutive voyage charters, revenue and voyage expenses are recognized based upon the relative transit time in each period. Although contracts of
affreightment, consecutive voyage charters and certain contracts for spot voyage charters may be effective for a period in excess of one year, revenue is recognized on the basis of individual voyages.
For time charters, revenue is recognized on a daily basis during the contract period, with expenses recognized as incurred. At December 31, 2004, we received an advance payment of $2,325 for
freight revenue from a customer. This deferred revenue is classified as a liability until earned.

Vessels and Equipment

Vessels and equipment are recorded at cost, including transaction fees where appropriate, and depreciated to salvage value using the straight-line
method as follows: ITBs to their mandatory retirement as required by the Oil Pollution Act of 1990 ("OPA 90"), between 2012 and 2014; and 10 years for parcel tankers. Major renewals and
betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Maintenance and repairs that do not improve or extend the useful lives of the assets are expensed
as incurred.

F-8

---



Drydocking

Both domestic and international regulatory bodies require that petroleum carrying shipping vessels be drydocked for major repair and maintenance every five years
and chemical vessels be drydocked twice every five years. In addition, vessels may have to be drydocked in the event of accidents or other
unforeseen damage. The Partnership capitalizes expenditures incurred for drydocking and amortizes these expenditures over 60 months for the ITBs and 30 months for the parcel tankers.

Deferred Financing Costs

Direct costs associated with obtaining long-term financing are deferred and amortized over the terms of the related financing. For the years ended
December 31, 2004 and 2003, and the period ended December 31, 2002, the Partnership incurred $7,928, $694, and $3,267, respectively, of deferred financing costs related to the issuance
of debt in connection with the acquisition of vessels and equipment. For the years ended December 31, 2004 and 2003 and the period ended December 31, 2002, amortization expense was $800,
$567 and $163, respectively. These costs are included in interest expense.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. The most significant estimate relates to the useful lives of the vessels. Actual results could differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Partnership to concentrations of credit risk are primarily cash and trade accounts receivable. The Partnership
maintains its cash on deposit at a financial institution in amounts that, at times, may exceed insurable limits.

The
Partnership's operations are concentrated in long-haul coastwise marine transportation services, principally for refined petroleum production in the U.S. domestic
"coastwise" trade. Events or changes in regulations impacting this industry could have a material impact on the Partnership's operations.

With
respect to accounts receivable, the Partnership extends credit based upon an evaluation of a customer's financial condition and generally does not require collateral. The
Partnership does not
believe it is exposed to concentrations of credit risk that are likely to have a material adverse effect on its financial position, results of operations or cash flows.

Voyage
revenues and accounts receivable for the Partnership's three largest customers approximately consisted of the following:

Voyage Revenues

Accounts ReceivableDecember 31,

December 31,2004

2003

2002

2004

2003

2002BP

27
%
52
%
62
%
13
%
1
%
15
%Shell

20
%
23
%

%
14
%
20
%

%Hess

12
%
15
%
22
%
5
%
26
%
45
%


F-9

---



Voyage
revenues from Hess do not include payments from Hess under the Hess support agreement. Accounts receivable from Hess include accounts receivable under the Hess support agreement.

Long-Lived Assets

The Partnership reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset's net book value, then the asset is deemed to be impaired and written down to
its fair value.

Derivative Instruments

The Partnership utilizes derivative financial instruments to reduce interest rate risks. The Partnership does not hold or issue derivative financial instruments
for trading purposes. Statement of Financial Accounting Standards No. 133,Accounting for Derivative Instruments and Hedging Activities, ("SFAS
No. 133"), as amended, establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure those instruments at fair value. Changes in the fair value of those instruments will be reported in earnings or other comprehensive
income depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the
effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value of cash flows of the
asset or liability hedged.

Income Taxes

As a limited liability company, the Predecessor was treated as a partnership for income tax purposes. Accordingly, the Predecessor was generally not subject to
federal and state taxes, and its profits and losses were passed directly to its members for inclusion in their respective income tax returns. The Predecessor was subject to certain state franchise
taxes.

One
of the Predecessor's subsidiaries, USS Vessel Management Inc., was a corporation and was subject to federal, state and local income taxes, which are reflected in these
financial statements. Upon completion of the initial public offering, a subsidiary of the Partnership, Chemical Pioneer Inc., was converted to a corporation and, consequently, is subject to
federal, state and local income taxes. Deferred taxes represent the tax effects of differences between the financial reporting and tax bases of the assets and liabilities at enacted tax rates in
effect for the years in which the differences are
expected to reverse. As a master limited partnership, the Partnership is generally not responsible for federal and state taxes, and its profits and losses are passed directly to its members for
inclusion in their respective income tax returns. The Partnership is subject to certain state franchise taxes.

We
provide deferred taxes for the tax effects of differences between the financial reporting and tax bases of assets and liabilities of our corporate subsidiary, which are recorded at
enacted tax rates in effect for the years in which the differences are projected to reverse. We evaluate the recoverability of deferred tax assets and establish a valuation allowance when it is more
likely than not that some portion or all of the deferred tax assets will not be realized. No such allowance was recorded at December 31, 2004 and December 31, 2003.

Fair Value of Financial Instruments

The carrying amount of the Partnership's financial instruments included in current assets and current liabilities approximates their fair value due to their
short-term nature. At December 31, 2004 and 2003, the net book value of long-term debt approximated its fair value.

F-10

---



Reclassification

Certain prior period amounts have been reclassified to conform to current year presentation.

Net Income per Unit

Basic net income per unit is determined by dividing net income, after deducting the amount of net income allocated to the general partner's interest from the
issuance date of the units of November 3, 2004, as described below, by the weighted average number of units outstanding during the period. Diluted net income per unit is calculated in the same
manner as net income per unit, except that the weighted average number of outstanding units is increased to include the dilutive effect of outstanding unit options or phantom units. There were no
options or phantom units outstanding during the period ended December 31, 2004. For periods prior to November 3, 2004, such units are equal to the common and subordinated units received
by the Predecessor in exchange for the net assets contributed to the Partnership, or 7,799,936.

As
required by Emerging Issues Task Force Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings
per Share" ("EITF 03-6"), the general partner's interest in net income is calculated as if all net income for the year was distributed according to the terms of the partnership agreement,
regardless of whether those earnings would or could be distributed. The partnership agreement does not provide for the distribution of net income; rather, it provides for the distribution of available
cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter after establishment of cash reserves. Unlike available cash, net income is affected by
non-cash items, such as deferred tax provisions.

As
described in Note 1 above, the general partner's incentive distribution rights entitle it to receive an increasing percentage of distributions when the quarterly cash
distribution exceeds $0.50 per unit. For purposes of EITF 03-6, the Partnership must treat net income as if it were distributable. Therefore, since net income did not exceed $0.50 per
unit, the assumed distribution of net income does not result in use of the increasing percentages to calculate the general partner's interest in net income for the quarter ended December 31,
2004.

New Accounting Pronouncements

Financial Accounting Standards Board ("FASB") Interpretation No. 46-R ("FIN 46")Consolidation of Variable Interest
Entitiesan Interpretation of ARB No. 51,was issued in January 2003 and addresses consolidation by business enterprises of variable interest entities
that meet certain characteristics. Based on the provisions of FIN 46, if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results
of the activities of the variable interest entity should be included in consolidated financial statements with those of the business enterprise. The Partnership adopted FIN 46 in fiscal 2004, which
resulted in no impact on the consolidated financial statements.

In
December 2004, the FASB issued SFAS No. 123(R),Share-Based Paymentwhich requires that compensation costs relating to
share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments used. SFAS No. 123(R) is
effective as of the first interim reporting period that begins after June 15, 2005. The Partnership does not believe the impact of adopting SFAS No. 123(R) will be material.

F-11

---



4.    Vessels and Equipment

Vessels and equipment consists of the following:

December 31,2004

2003Vessels

$
228,171

$
197,171Capitalized drydock expenditures


12,448


12,448Construction in-progress


7,929


Office furniture and equipment





693Total vessels and equipment


248,548


210,312Less: Accumulated depreciation


46,625


22,991Total vessels and equipment, net

$
201,923

$
187,321


Depreciation
and amortization of vessels and equipment for the years ended December 31, 2004 and 2003 and the period ended December 31, 2002 was $23,945, $17,921, and
$5,070, respectively. Depreciation includes amortization of drydocking expenditures of $4,974 and $833 for the years ended December 31, 2004 and 2003. There was no amortization of drydocking
expenditures during the period ended December 31, 2002. Construction in-progress for the year ended December 31, 2004 includes amounts paid for the construction of the ATB
(Note 10) and capitalized interest of $72.

In
connection with the closing of the initial public offering, certain assets were retained by the general partner, including furniture and fixtures with net book value of $503 at the
date of closing.

5.    Income Taxes

The components of the provision for income taxes for the years ended December 31, 2004 and 2003 and for the period ended December 31, 2002 are as
follows:

Year Ended
December 31, 2004

Year Ended
December 31, 2003

Period Ended
December 31, 2002CurrentFederal

$
145

$


$
State


79


34


7224


34


7DeferredFederal


2,232


33


10State


663


5


12,895


38


11Provision for income taxes

$
3,119

$
72

$
18


F-12

---



A
reconciliation of income tax expense, as computed using the federal statutory income tax rate of 34%, to the provisions (benefit) for income taxes for the years ended
December 31, 2004 and 2003 and the period ended December 31, 2002 is as follows:

2004

2003

2002Tax at federal statutory rate of 34%

$
1,553

$
852

$
(220
)Entities not subject to federal income taxes


(1,792
)

(820
)

229State and local income taxes, net of federal benefit


19


33


7Increase in deferred taxes resulting from conversion of a subsidiary to a corporation


3,244





Other


95


7


2Total

$
3,119

$
72

$
18


Significant
components of deferred income tax liabilities and assets as of December 31, 2004 and 2003 are as follows:

December 31,2004

2003Current deferred tax assets (liabilities)Prepaid expenses

$
(19
)
$
(33
)Net operating loss carryforward


19


Other





2


(31
)Noncurrent deferred tax assets (liabilities)Capitalized expenses





15Net operating loss carryforward





7Depreciation and amortization


(2,944
)

(40
)(2,944
)

(18
)Net deferred tax liability

$
(2,944
)
$
(49
)


6.    Financing



On September 13, 2002, the Predecessor entered into a credit facility, which provided for a line of credit up to $10,000. The credit facility required a
0.75% annual commitment fee on the sum of the average daily-unused portion of the line of credit amount and 3.50% on outstanding letters of credit. Borrowings bore interest at the bank's prime rate
plus 1.75% or LIBOR plus 3.25%. At December 31, 2003, there were no borrowings outstanding under the line of credit. The agreement was amended and restated in April 2004.

In
addition, the credit facility provided for a $130,000 term loan that bore interest at blended LIBOR (1.20% and 1.40% at December 31, 2003 and 2002, respectively) plus 3.25%.
Interest was due and payable quarterly. Principal payments were also due quarterly beginning March 31, 2004. The loan matured on September 30, 2008 and was collateralized by all of the
ITBs. At December 31, 2003 and 2002, $100,375 and $124,750, respectively, was outstanding under the credit facility. The credit facility

F-13

---



contained
restrictive covenants, which required adherence to specified financial ratios and minimum levels of tangible net worth, as defined in the agreement. The credit facility was amended and
restated in April 2004.

On
September 13, 2002, the Predecessor entered into a $29,000 note payable agreement with Hess in connection with the asset purchase agreement. The note bore interest at 9.00%
through September 2007, and 12.00% thereafter, through the December 2011 maturity date. Interest was due and payable semi-annually. Principal was due in
semi-annual installments of $4,833, commencing June 30, 2009, and was due each six-month period thereafter. The note was secured by all of the ITBs and was subordinated
to the bank debt. The note was repaid in full in April 2004.

On
July 16, 2003, the Predecessor entered into a financing agreement with a bank. The agreement provided for a $15,000 term loan that bore interest at three-month LIBOR (1.14% at
December 31, 2003), plus 5%. Principal and interest was due and payable quarterly. The loan would have matured on December 31, 2008 and was collateralized by all assets of the
Predecessor. At December 31, 2003, $15,000 was outstanding under this agreement. The financing agreement contained a restrictive cash "waterfall" that limited the Predecessor's access to cash
receipts unless certain criteria were met. The agreement also required the restriction of certain cash balances in order to service the debt. The term loan was paid in full in April 2004.



On April 13, 2004, the Predecessor entered into an amended and restated credit facility. The amended and restated credit facility provided for a $202,500
term loan that bore interest at LIBOR plus 2.25% or the prime rate plus an applicable margin. Principal and interest was due and payable quarterly. The loan would have matured on March 31,
2010, and was collateralized by all of the Predecessor's assets. The amended and restated credit facility contained various financial covenants including certain restrictions on the sale or
acquisition of assets and a requirement to adhere to specified financial ratios.

The
amended and restated credit facility provided for a revolving credit facility up to $25,000, with a letter of credit sub-facility of $10,000. The amended and restated
credit facility required a 1% annual commitment fee on the sum of the average daily unused portion of the line of credit amount and 1.75% to 2.25%, depending on certain debt leverage ratios, on any
outstanding letters of credit. Borrowings bore interest at the bank prime rate plus 0.75% to 1.25% or LIBOR plus 1.75% to 2.25%, depending in each case on certain debt leverage ratios.

In
connection with entering into the amended and restated credit facility, the Predecessor expensed $3,167 of financing costs and capitalized $4,064 of financing costs. This refinance
arrangement resulted in full payment of the $14,175 term loan for the Predecessor, and the $29,000 term loan due to Hess, as well as amending the line of credit and the term loan. In addition, a
distribution of $15,000 was made to members of the Predecessor.

In
connection with the Partnership's initial public offering of common units, as described in Note 2, all of the Predecessor's debt balances were contributed to the Partnership.
Approximately $93,750 of the debt was repaid with proceeds of the initial public offering.



On November 3, 2004, the Partnership entered into a second amended and restated credit agreement, which provides for a $100,000 term loan that bears
interest at LIBOR (2.56% at December 31, 2004) plus 2.00%, or the prime rate (5.25% at December 31, 2004) plus an applicable

F-14

---



margin.
Principal and interest is due and payable quarterly. The loan matures on April 30, 2010, and is collateralized by all the Partnership's assets. The second amended and restated credit
facility contains various financial covenants, including certain restrictions on the sale or acquisition of assets and a requirement to adhere to specified financial ratios.

The
second amended and restated credit facility provides for a revolving credit facility up to $50,000, with a letter of credit sub-facility of $10,000. The second amended
and restated credit facility requires a 0.50% annual commitment fee on the sum of the average daily unused portion of the line of credit amount, a 1.50% to 2.00% fee, depending on certain debt
leverage ratios, on any outstanding letters of credit, and a 0.75% annual commitment fee with respect to the delayed draw term loan. Borrowings bear interest at the bank's prime rate plus 0.50% to
1.00% or LIBOR plus 1.50% to 2.00%, depending in each case on certain debt leverage ratios.

The
second amended and restated credit facility also provides for a delayed draw term loan of $30,000, which may be exercised on or before November 2, 2005. In addition, we will
have the option to increase, up to an additional amount not to exceed $90 million in the aggregate, the maximum amount available to us under the credit agreement through increases in either the
term facility, revolving credit facility or both, which option expires November 2, 2006. Our exercise of this option is at the mutual discretion of the lending institution and the Partnership,
and is contingent upon, among other things:



In
connection with entering into the second amended and restated credit facility, we expensed $3,230 of previously capitalized financing costs and certain additional costs incurred in
amending and restating
this credit facility. In addition, $890 of costs incurred in amending and restating this credit facility were capitalized.

As
of December 31, 2004 and 2003, outstanding debt balances were as follows:

December 31,2004

2003Short-term:Current portion of long-term debt

$
1,500

$
34,425Long-term:Term loan


98,125


80,950Subordinated note





29,00098,125


109,950Total debt

$
99,625

$
144,375


F-15

---



As
of December 31, 2004, principal payments under the long-term debt agreement for each of the next five years and thereafter are as follows:

Year ended December 31,2005

$1,5002006

1,5002007

5,0002008

8,1112009

44,563Thereafter

38,951$99,625


7.    Interest Rate Hedging

During 2002, the Predecessor entered into contracts to hedge the interest rate risk on a portion of the term loan. As discussed in Note 6, payments under
the term loan are based on blended LIBOR plus 2.00% and 3.25% at December 31, 2004 and 2003, respectively. To hedge the risk of increasing interest rates, the Predecessor entered into a $62,375
notional principal interest rate swap that effectively converted the floating LIBOR-based payments to a fixed rate of 3.15% plus the LIBOR-rate spread of 3.25%, resulting in a 6.40%
interest rate. The contract expires in December 2006. In April 2004, the LIBOR-rate spread on the aforementioned interest rate swap was changed to 2.25%, resulting in a 5.40%
interest rate. In November 2004, the LIBOR-rate spread on the aforementioned interest rate swap was changed to 2.00%, resulting in a 5.15% interest rate. In April 2004, the
Predecessor also entered into a second contract to hedge the interest rate risk on an additional portion of the term loan. The Predecessor entered into a $54,250 notional principal interest rate swap
that effectively converted the floating LIBOR-based payments to a fixed rate of 3.9075% plus the LIBOR-rate spread of 2.25%, resulting in a 6.1575% interest rate. In November 2004,
the LIBOR-rate spread on the aforementioned interest rate swap was changed to 2.00%, resulting in a 5.9075% interest rate. The contract expires in December 2008. At
December 31, 2004 and 2003, LIBOR was 2.56% and 1.16%, respectively. The unrealized losses related to interest rate hedges were $207 and $745 as of December 31, 2004 and 2003,
respectively. These amounts are reflected in other comprehensive loss as the contracts have been designated as cash flow hedges.

8.    Hess Support Agreement

On September 13, 2002, the Predecessor entered into an agreement (the "Support Agreement") with Hess in which certain daily charter rates were agreed for
five years and based upon which support payments would be made by Hess to the Partnership. For the period ended December 31, 2002, the operations of two ITBs were covered by the Support
Agreement for a portion of the year. For the year ended December 31, 2003, four ITBs were covered. Under the terms of the Support Agreement, Hess agreed to pay the Partnership for the amount by
which the Partnership's negotiated third-party contract rates are less than the agreed charter rate. However, in the event that the charter rates the Partnership receives on the ITBs are in excess of
the Hess support rate, then the Partnership must pay such excess amounts to Hess until the Partnership has repaid Hess for all prior support payments made by Hess to us, and then the Partnership must
share 50% of any additional excess amount with Hess. The differences resulting from these rates are calculated on a monthly basis. The net amounts received or paid by the Partnership will be
considered contingent purchase price until the end of the Support

F-16

---



Agreement
term (September 2007), at which time the net amount received or paid will be treated as a purchase price adjustment.

From
September 13, 2002 to December 31, 2004, the Partnership's third-party contract rates have been less than the agreed charter rates by a cumulative amount of $11,387,
which has been classified as advances from Hess. For the years ended December 31, 2004 and 2003, advances from Hess under the Support Agreement were $4,007 and $5,326, respectively.

9.    Related Party Transactions

Hess is one of the Partnership's significant customers. Voyage revenues earned from transactions with Hess (which do not include amounts under the Support
Agreement) for the years ended December 31, 2004 and 2003 and the period ended December 31, 2002 were $14,221, $12,423, and $6,244, respectively. Accounts receivable due under the
Support Agreement were $9 and $1,148 at December 31, 2004 and 2003, respectively.

On
September 12, 2002, the Predecessor entered into a three-year agreement with an affiliate of one of the Predecessor's members whereby the affiliate provided certain
business advisory and management services, including the assistance with the development of corporate strategy, budgeting and assistance in procuring financing, to the Predecessor for an annual fee of
$500. A further agreement was made on May 6, 2003 with the affiliate for similar additional services. The Predecessor incurred and paid approximately $600, $564, and $152 in 2004, 2003, and
2002, respectively, for
business advisory and management services. These agreements were terminated concurrent with the closing of the Partnership's initial public offering. United States Shipping Master LLC paid this
affiliate $3,700 in connection with such termination.

Certain
subsidiaries of the Predecessor were not contributed to the Partnership; however, these subsidiaries' expenses are entirely reimbursable by the Partnership. Amounts reimbursable
to these subsidiaries include general and administrative expenses, and wages and benefits for crew members. These amounts were $6,717 for the period November 3, 2004 through December 31,
2004.

During
2003, the Predecessor paid approximately $350 to an affiliate of a member for fees in connection with the purchase of theChemical
Pioneer.

During
2002, the Predecessor paid approximately $4,100 to a member and an affiliate of a certain member for fees in connection with the closing of the transaction for the acquisition of
certain assets of the Catug Group.

During
the period ended December 31, 2002, and based on the provisions of the asset purchase agreement, the Predecessor utilized office space and other administrative services in
Hess' office building at no charge for a period of five months.

F-17

---



10.   Commitments and Contingencies

On October 17, 2002, a subsidiary of the Predecessor, which was not contributed to the Partnership, entered into a six-year operating lease
agreement for office space. On November 18, 2003, this subsidiary entered into a five-year operating lease for additional office space at the same location and took possession in
May 2004. The subsidiary also leases office equipment under operating lease arrangements. General and administrative expenses incurred on behalf of the Partnership by this subsidiary are
entirely reimbursable by the Partnership. At December 31, 2004, future rental commitments under these noncancelable leases are as follows:

Year ending December 31,2005

$
3812006


3712007


3692008


3982009


67Thereafter


$
1,586


Rent
expense for the years ended December 31, 2004 and 2003 and the period ended December 31, 2002 was approximately $411, $272, and $12, respectively. In addition to
minimum rental payments above, rent expense includes reimbursements for real estate taxes, maintenance and utilities and rental of a warehouse under a cancelable lease.

The
general partner of the Partnership has entered into employment agreements, expiring in 2007, with its six executive officers. The employment agreements have an initial term of three
years that are automatically extended for successive one-year terms unless either party gives 60-days written notice prior to the end of the term that such party desires not to
renew the employment agreement. The employment agreements provide for an aggregate base annual salary of $1,812. In addition, each employee is eligible to receive an annual bonus award as determined
by the Board of Directors of the general partner at its sole discretion. If the employee's employment is terminated without cause or if the employee resigns for a good reason, the employee will be
paid, for a period equal to the longer of (a) the remaining term of the employee's agreement or (b) one year, a monthly payment equal to one-twelfth of the employee's then
annual salary.

The
Partnership is the subject of various claims and lawsuits in the ordinary course of business arising principally from personal injuries, collisions, and other casualties. Although
the outcome of any individual claim or action cannot be predicted with certainty, the Partnership believes that any adverse outcome, individually or in the aggregate, would be substantially mitigated
by applicable insurance and would not have a material adverse effect on the general partner's financial position, results of operations or cash flows. The Partnership is subject to deductibles with
respect to its insurance coverage up to $150 per incident and provides on a current basis for estimated payments thereunder.

The
Partnership's time charters and consecutive voyage charters extend over various periods which expire during 2005 and 2006.

F-18

---



At
December 31, 2004, minimum future charter revenue from vessel charters was as follows:

Year ending December 31,2005

$
36,3002006


27,740Thereafter


Total

$
64,040


In
August 2004, the Partnership entered into a fixed price contract for the construction of an ATB, which is scheduled to be delivered in early 2006. The contract price for the
ATB is $45,400, including an anticipated $500 of Partnership supervision costs. The Partnership has paid $7,900 in 2004 and expects to pay $31,500 in 2005 and $6,000 in 2006. The ATB construction
contract provides the Partnership with options to purchase three additional ATBs over the next 24 months at fixed prices, subject to limited exceptions. If the Partnership does not exercise any
of the options, the Partnership must pay the shipyard an additional $375, and if the Partnership exercises the option only for one additional ATB, the Partnership must pay the shipyard $125.

11.   Employee Benefit Plans

The Partnership maintains an employee savings plan under Section 401(k) of the Internal Revenue Code. The plan covers all office employees and allows
participants to contribute to the plan a percentage of pre-tax compensation, but not in excess of the maximum allowed under the Internal Revenue Code. At December 31, 2004, the plan
provides for a 4% matching contribution by the Partnership. At December 31, 2003 and 2002, the plan provided for a 3% matching contribution. In 2004, 2003 and 2002, the Partnership made
matching contributions of approximately $112, $92, and $18, respectively, to the plan.

A
significant number of the employees of two subsidiaries of the general partner are covered by union sponsored, collectively bargained multi-employer pension plans. These expenses are
directly allocated to, and reimbursed by, the Partnership. The Partnership contributed and charged to expense $548, $436, and $104 in 2004, 2003, and 2002, respectively, for such plans. Information
from the plan's administrators is not sufficient to permit the Partnership to determine its share, if any, of unfunded vested benefits.

12.   Quarterly Results of Operations (Unaudited)

The following summarizes certain quarterly results of operations:

|                                                               |  | Three Months Ended
|-------------------------------------------------------------- |  | ------------------
|
|
|2004                                                           |  |                   
|Total revenues                                                 |  | $                 
|Operating income                                               |  | $                 
|Net income (loss)                                              |  | $                 
|General partners' interest in net income (loss)                |  | $                 
|Limited partners' interest in net income (loss)                |  | $                 
|Net income (loss) per limited partner unit (basic and diluted) |  | $                 

F-19

---



|                                                               |  | Three Months Ended
|-------------------------------------------------------------- |  | ------------------
|
|
|2003                                                           |  |                   
|Total revenues                                                 |  | $                 
|Operating income                                               |  | $                 
|Net income (loss)                                              |  | $                 
|Limited partners' interest in net income (loss)                |  | $                 
|Net income (loss) per limited partner unit (basic and diluted) |  | $                 

Net
income for the three months ended December 31, 2004 includes a charge for deferred income taxes of $3,244 relating to a change in tax status of a subsidiary (Note 5)
and a charge relating to extinguishment of debt of $3,230. Net income for the three months ended June 30, 2004 includes a charge relating to extinguishment of debt of $3,167.

13.   Subsequent Events

On February 2, 2005, the Board of Directors of the general partner declared and the Partnership announced its first regular cash distribution for the
fourth quarter of 2004 of $0.2885 per unit, based on the minimum quarterly cash distribution per unit of $0.45 prorated for the period since the initial public offering on November 3, 2004. The
distribution was paid on all common, subordinated and general partner units on February 14, 2005 to all unitholders of record on February 9, 2005. The aggregate amount of the
distribution was $4,063.

F-20

---





Report of Independent Registered Public Accounting Firm

To
the Partners of U.S. Shipping Partners L.P.

In
our opinion, the accompanying Catug Group (the "Group") (a division of Amerada Hess Corporation) combined statements of operations, owner's net investment and cash flows present
fairly, in all material respects, the results of its operations and its cash flows for the period from January 1, 2002 to September 12, 2002 in conformity with accounting principles
generally accepted in the United States of America. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As
described in Note 1, on September 13, 2002, Amerada Hess Corporation sold the six vessels and related equipment of the Group to a third party.

As
described in Note 3, the Group has substantial transactions and relationships with affiliated entities. Because of these relationships it is possible that the terms are not the
same as those that would result from transactions among wholly unrelated parties.

PricewaterhouseCoopers
LLP
Florham Park, New Jersey
August 2, 2004

F-21

---





Catug Group  (A Division of Amerada Hess Corporation)  Combined Statements of Operations  Period From January 1, 2002 Through September 12, 2002  (in thousands, except per unit data)

|                                    |                          | Period Ended
September 12,
2002
|----------------------------------- | ------------------------ | -------------------------------
|Revenues                            |                          | $                              
|                                    |                          |                                
|Operating expenses                  |                          |                                
|Vessel operating expenses           |                          |                                
|Voyage expenses                     |                          |                                
|General and administrative expenses |                          |                                
|Depreciation                        |                          |                                
|                                    |                          |                                
|                                    | Total operating expenses |                                
|                                    |                          |                                
|Income before income taxes          |                          |                                
|Provision for income taxes          |                          |                                
|                                    |                          |                                
|                                    | Net income               |                                
|                                    |                          |                                
|Net income per unit-                |                          |                                
|                                    |                          | basic and diluted              
|                                    |                          |                                

The
accompanying notes are an integral part of these financial statements.

F-22

---





Catug Group  (A Division of Amerada Hess Corporation)  Combined Statements of Owner's Net Investment  Period From January 1, 2002 Through September 12, 2002  (in thousands)

|Balance at December 31, 2001                                            |  | $ | 34,096
|----------------------------------------------------------------------- |  | - | ------
|Net income for the period of January 1, 2002 through September 12, 2002 |  |   | 5,421 
|Net intercompany activity with related parties                          |  |   | 9,335 
|                                                                        |  |  
|Balance at September 12, 2002                                           |  | $ | 48,852
|                                                                        |  |  

The
accomanying notes are an integral part of these financial statements.

F-23

---





Catug Group  (A Division of Amerada Hess Corporation)  Combined Statements of Cash Flows  Period From January 1, 2002 through September 12, 2002  (in thousands)

|                                                                                 |                                   | Period Ended
September 12,
2002             |                                          
|-------------------------------------------------------------------------------- | --------------------------------- | ------------------------------------------- | -----------------------------------------
|Cash flows from operating activities                                             |                                   |                                             |                                          
|Net income                                                                       |                                   | $                                           | 5,421                                    
|Adjustments to reconcile net income to net cash provided by operating activities |                                   |                                             |                                          
|                                                                                 | Depreciation                      |                                             |                                          
|                                                                                 | Deferred income taxes             |                                             |                                          
|                                                                                 | Changes in assets and liabilities |                                             |                                          
|                                                                                 |                                   | Accounts receivable                         |                                          
|                                                                                 |                                   | Prepaid expenses and other current assets   |                                          
|                                                                                 |                                   | Accounts payable and other accrued expenses |                                          
|                                                                                 |                                   | Deferred revenue                            |                                          
|                                                                                 |                                   |                                             |                                          
|                                                                                 |                                   |                                             | Net cash provided by operating activities
|                                                                                 |                                   |                                             |                                          
|Cash flows from investing activities                                             |                                   |                                             |                                          
|Purchase of vessels and equipment                                                |                                   |                                             | (18,193                                  
|                                                                                 |                                   |                                             |                                          
|                                                                                 |                                   |                                             | Net cash used in investing activities    
|                                                                                 |                                   |                                             |                                          
|Cash flows from financing activities                                             |                                   |                                             |                                          
|Net advances from related parties                                                |                                   |                                             | 9,335                                    
|                                                                                 |                                   |                                             |                                          
|                                                                                 |                                   |                                             | Net change in cash                       
|Cash, beginning of year                                                          |                                   |                                             |                                         
|                                                                                 |                                   |                                             |                                          
|Cash, end of year                                                                |                                   | $                                           |                                         
|                                                                                 |                                   |                                             |                                          

The
accompanying notes are an integral part of these financial statements.

F-24

---





Catug Group  (A Division of Amerada Hess Corporation)  Notes to Combined Financial Statements  Period from January 1, 2002 through September 12, 2002  (in thousands)

1.     Summary of Significant Accounting Policies

Basis of Financial Statements

The Catug Group (the "Group") of Amerada Hess Corporation ("Parent") is comprised of the following nine corporations and one division: First Tug/Barge
Corporation, Second Tug/Barge Corporation, Third Tug/Barge Corporation, Fourth Tug/Barge Corporation, Fifth Tug/Barge Corporation, Sixth Tug/Barge Corporation, Tankoil, Inc., Sheridan
Transportation Company, Tug New York Company, and Amerada Hess CorporationMarine Division.

Each
entity is a direct or indirect wholly-owned subsidiary or division of the Parent and is included in the Parent's consolidated financial statements. The Group is an owner and
operator of six vessels engaged in Jones Act trade providing primarily petroleum transportation services. A significant portion of the Group's business is transacted with the Parent and its affiliates
(Note 3).

On
September 13, 2002, the Parent sold the six vessels and related equipment of the Group to a third party for an aggregate sale price of $190,000.

Principles of Combination

The combined financial statements include the accounts of the Group. All intragroup transactions have been eliminated.

Revenue Recognition

The Group recognizes revenue under two types of arrangements: (1) the Group contracts its vessels to clients under time charters based on a daily rate of
hire and recognizes revenue as earned on a daily basis during the contract period of the specific vessel; and (2) for spot charter voyages, revenue and related expenses are recognized at the
time the vessel has completed discharging its cargo.

Vessels and Equipment

Vessels and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. The
average useful life of the vessel fleet is 12.5 years. Major renewals and betterments of assets are capitalized and depreciated over the remaining useful lives of the assets. Maintenance and
repairs that do not improve or extend the useful lives of the assets are expensed as incurred.

Drydock Reserves

The Group's vessels are required to be recertified by the United States Coast Guard after certain periods of time. The Group maintains a drydock reserve to accrue
and expense for estimated drydocking costs over the operating period preceding each scheduled drydocking. These reserves are included in accrued liabilities.

Income Taxes

The Group is included in the consolidated federal income tax return of the Parent. Different organizational structures could significantly impact the effective
tax rate. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the

F-25

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financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using currently enacted tax rates. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. As current income tax amounts are to be ultimately settled
through intercompany activity with the Parent, such amounts have been included in the Owner's Net Investment amounts in the accompanying combined financial statements.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The most significant estimates relate to the useful lives of the vessels and the drydock reserves. Actual results could differ from those
estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Group to concentrations of credit risk are trade accounts receivable. The Group extends credit based upon an
evaluation of a customer's financial condition and generally does not require collateral. The Group does not believe it is exposed to concentrations of credit risk that are likely to have a material
adverse effect on its financial position, results of operations or cash flows.

The
Group's operations are concentrated in marine transportation services, principally for the petroleum industry in the United States. Events or changes in regulations impacting this
industry could have potential impact on the Group's operations.

For
the period ended September 12, 2002, two customers accounted for approximately 99% and 95%, respectively, of total revenues. BP accounted for 74% of revenue and Amerada Hess
accounted for 21% of total revenue for the period ended September 12, 2002.

Long-Lived Assets

The Group reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the net book value of an asset may not be
recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset's carrying value, then the asset is deemed to be impaired and written down to its
fair value.

Net Income per Unit

Basic net income per unit is determined by dividing net income by the weighted average number of units outstanding during the period. Diluted net income per unit
is calculated in the same manner as net income per unit, except that the weighted average number of outstanding units is increased to include the dilutive effect of outstanding unit options or phantom
units. There were no options or phantom units outstanding during the period ended December 31, 2002. For the period ended December 31, 2002, such units are equal to the common and
subordinated units received by the United States Master LLC in exchange for the net assets contributed to U.S. Shipping Partners L.P., or 7,800.

F-26

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2.     Income Taxes

The components of income tax (benefit) expense were as follows:

September 12,
2002Current

$
943Deferred


1,988Total

$
2,931


The
significant temporary differences that give rise to the net deferred tax assets are differences in the basis of property and equipment and drydock, downtime and engine reserves for
income tax and financial reporting purposes.

The
current taxes receivable and payable of the Group which are ultimately settled with its Parent have been included in the owner's net investment amounts in the accompanying combined
financial statements.

A
reconciliation of income tax expense, as computed using the federal statutory income tax rate of 35% to the Group's tax provision, is as follows:

September 12,
2002Expected tax at statutory rate

35.0
%Nondeductible expenses

0.1
%Effective tax rate

35.1
%


3.     Related Party Transactions

Following is a summary of material transactions between the Group and its Parent and other affiliates:

Period Ended
September 12,
2002Revenues

$
9,297Vessel and voyage operating expenses


981General and administrative expenses


224


Effective
January 1, 2001, the Group entered into service level agreements with its Parent. Under these agreements the Parent provides information systems services, human
resources, risk management and other administrative related functions to the Group. The fee charged for these services is based upon estimated level of time expended for human resources, risk
management and other administrative functions plus volume-related charges for information systems activities. The fees allocated for these services are reported as general and administrative expenses
in the table above and in the accompanying combined statements of operations.

During
the period ended September 12, 2002, affiliates of the Group provided certain vessel operating expenses which included fuel costs and insurance related to vessel
operations.

The
Group is included in the consolidated federal income tax return of the Parent.

F-27

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4.     Commitments and Contingencies

Operating Lease

The Group leased a vessel under a noncancelable operating lease through August 2002. The lease primarily provided for minimum rentals. Total lease expense
for the period ended September 12, 2002 was approximately $4,573.

In
August 2002, the Group purchased this vessel from the lessor for approximately $18,193.

Legal

The Group is subject to certain legal proceedings and claims arising in connection with its business. It is management's opinion that any and all claims
outstanding at September 12, 2002 will not have a material effect on the Group's financial position or results of operations in the period resolved.

F-28

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

Date:
March 30, 2005

| |  | U.S. SHIPPING PARTNERS L.P.                                          
| |  | ---------------------------------------------------------------------
| |  | By:    US Shipping General Partner LLC,
          its general partner
| |  | By:                                                                  

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
indicated on the dates indicated.

|Signature                                       |  | Title                                                                               |  | Date          
|----------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | --------------
|                                                |  |                                                                                     |  |               
|/s/PAUL B. GRIDLEYPaul B. Gridley               |  | Chairman, Chief Executive Officer (principal executive officer)                     |  | March 30, 2005
|/s/ALBERT E. BERGERONAlbert E. Bergeron         |  | Vice PresidentChief Financial Officer (principal financial and accounting officer) |  | March 30, 2005
|/s/BRYAN GANZBryan Ganz                         |  | Director                                                                            |  | March 30, 2005
|/s/JOSEPH P. GEHEGANJoseph P. Gehegan           |  | Director                                                                            |  | March 30, 2005
|/s/WILLIAM M. KEARNS, JR.William M. Kearns, Jr. |  | Director                                                                            |  | March 30, 2005
|/s/M. WILLIAM MACEY, JR.M. William Macey, Jr.   |  | Director                                                                            |  | March 30, 2005
|/s/DOUGLAS L. NEWHOUSEDouglas L. Newhouse       |  | Director                                                                            |  | March 30, 2005
|/s/RONALD L. O'KELLEYRonald L. O'Kelley         |  | Director                                                                            |  | March 30, 2005

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