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

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2009

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                                                        |  | 20-1447743                           
|(State or other jurisdiction of
 incorporation or organization) |  | (I.R.S. Employer Identification
 No.)

399 Thornall St., 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
(g) of the Act: None

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.

Yes o    No x


Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.

Yes o   No x


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 x   No o

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).

Yes o   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. o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):

|                           |  |                      |  |                                                                      |  |                            
|-------------------------- |  | -------------------- |  | -------------------------------------------------------------------- |  | ---------------------------
|Large accelerated filer  o |  | Accelerated filer  o |  | Non-accelerated filer (Do not check if smaller reporting company)  o |  | Smaller reporting company x

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o    No x

The number of the
registrants common units outstanding as of July 31, 2009 was 11,353,808. At
that date, 6,899,968 subordinated units were outstanding.

---



U.S. SHIPPING PARTNERS L.P.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2009 
TABLE OF CONTENTS

|           |  |                                                                                                                                               |  |          | 
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | 
|           |  |                                                                                                                                               |  | Page No.
|           |  |                                                                                                                                               |  |         
|           |  | PART IFINANCIAL INFORMATION                                                                                                                  |  |          | 
|           |  |                                                                                                                                               |  |          | 
|Item 1.    |  | Financial
 Statements                                                                                                                         |  |          | 
|           |  |                                                                                                                                               |  |          | 
|           |  | Unaudited
 Condensed Consolidated Balance Sheets as of March 31, 2009 and December 31,
 2008                                                  |  | 3        | 
|           |  |                                                                                                                                               |  |          | 
|           |  | Unaudited
 Condensed Consolidated Statement of Operations and Comprehensive Income for
 the three month periods ended March 31, 2009 and 2008 |  | 4        | 
|           |  |                                                                                                                                               |  |          | 
|           |  | Unaudited
 Condensed Consolidated Statement of Changes in Partners Capital for the
 three-month period ended March 31, 2009                  |  | 5        | 
|           |  |                                                                                                                                               |  |          | 
|           |  | Unaudited
 Condensed Consolidated Statement of Cash Flows for the three-month periods
 ended March 31, 2009 and 2008                          |  | 6        | 
|           |  |                                                                                                                                               |  |          | 
|           |  | Notes to
 Unaudited Condensed Consolidated Financial Statements                                                                               |  | 7        | 
|           |  |                                                                                                                                               |  |          | 
|Item 2.    |  | Managements
 Discussion and Analysis of Financial Condition and Results of Operations                                                        |  | 28       | 
|           |  |                                                                                                                                               |  |          | 
|Item 3.    |  | Quantitative
 and Qualitative Disclosures About Market Risk                                                                                   |  | 38       | 
|           |  |                                                                                                                                               |  |          | 
|Item 4.    |  | Controls
 and Procedures                                                                                                                      |  | 39       | 
|           |  |                                                                                                                                               |  |          | 
|           |  | PART IIOTHER INFORMATION                                                                                                                     |  |          | 
|           |  |                                                                                                                                               |  |          | 
|Item 1.    |  | Legal
 Proceedings                                                                                                                            |  | 40       | 
|           |  |                                                                                                                                               |  |          | 
|Item 1A.   |  | Risk
 Factors                                                                                                                                 |  | 40       | 
|           |  |                                                                                                                                               |  |          | 
|Item 2.    |  | Unregistered
 Sales of Equity Securities and Use of Proceeds                                                                                  |  | 40       | 
|           |  |                                                                                                                                               |  |          | 
|Item 3.    |  | Defaults
 Upon Senior Securities                                                                                                              |  | 41       | 
|           |  |                                                                                                                                               |  |          | 
|Item 4.    |  | Submission
 of Matters to a Vote of Security Holders                                                                                          |  | 41       | 
|           |  |                                                                                                                                               |  |          | 
|Item 5.    |  | Other
 Information                                                                                                                            |  | 41       | 
|           |  |                                                                                                                                               |  |          | 
|Item 6.    |  | Exhibits                                                                                                                                      |  | 43       | 
|           |  |                                                                                                                                               |  |          | 
|SIGNATURES |  | 44                                                                                                                                            | 

In this
report, unless the context otherwise requires, the terms we, us, our, and
the Partnership refer to U.S. Shipping Partners L.P., a Delaware limited
partnership, and its subsidiaries.

2

---



PART I 
FINANCIAL INFORMATION

ITEM 1. Financial Statements

U.S. Shipping Partners L.P.Unaudited Condensed Consolidated Balance Sheet
(in thousands)

|                                          |  |                |         |                   |   |         |  
|----------------------------------------- |  | -------------- | ------- | ----------------- | - | ------- | -
|                                          |  | March 31, 2009 |         | December 31, 2008 |  
|                                          |  |                |         |                   |  
|Assets                                    |  |                |         |                   |   |         |  
|Current assets                            |  |                |         |                   |   |         |  
|Cash and equivalents                      |  | $              | 23,369  |                   | $ | 20,599  |  
|Restricted cash and equivalents           |  |                | 710     |                   |   | 7,566   |  
|Accounts receivable, net                  |  |                | 6,483   |                   |   | 4,905   |  
|Prepaid expenses and other current assets |  |                | 11,648  |                   |   | 19,077  |  
|                                          |  |                |         |                   |   |         |  
|Total current assets                      |  |                | 42,210  |                   |   | 52,147  |  
|Vessels and equipment, net                |  |                | 762,848 |                   |   | 704,195 |  
|Deferred financing costs, net             |  |                |        |                   |   | 2,253   |  
|Other assets                              |  |                | 2,029   |                   |   | 1,840   |  
|                                          |  |                |         |                   |   |         |  
|Total assets                              |  | $              | 807,087 |                   | $ | 760,435 |  
|                                          |  |                |         |                   |   |         |  
|                                          |  |                |         |                   |   |         |  
|                                          |  |                |         |                   |   |         |  
|Liabilities and Partners Capital         |  |                |         |                   |   |         |  
|Current liabilities                       |  |                |         |                   |   |         |  
|Current portion of long-term debt         |  | $              | 681,529 |                   | $ | 610,295 |  
|Accounts payable                          |  |                | 1,727   |                   |   | 7,424   |  
|Due to affiliates                         |  |                | 3,664   |                   |   | 4,123   |  
|Deferred revenue                          |  |                |        |                   |   | 6,165   |  
|Accrued expenses and other liabilities    |  |                | 30,938  |                   |   | 30,193  |  
|                                          |  |                |         |                   |   |         |  
|Total current liabilities                 |  |                | 717,858 |                   |   | 658,200 |  
|Deferred income taxes                     |  |                | 2,720   |                   |   | 2,720   |  
|Other liabilities                         |  |                | 17,062  |                   |   | 17,969  |  
|                                          |  |                |         |                   |   |         |  
|Total liabilities                         |  | $              | 737,640 |                   | $ | 678,889 |  
|                                          |  |                |         |                   |   |         |  
|                                          |  |                |         |                   |   |         |  
|Partners Capital                         |  |                |         |                   |   |         |  
|Partners capital                         |  | $              | (17,695 | )                 | $ | (4,014  | )
|Accumulated other comprehensive loss      |  |                | (7,155  | )                 |   | (8,294  | )
|                                          |  |                |         |                   |   |         |  
|Total partners equity                    |  |                | (24,850 | )                 |   | (12,308 | )
|Non controlling interest in Joint Venture |  |                | 94,297  |                   |   | 93,854  |  
|                                          |  |                |         |                   |   |         |  
|Total partners capital                   |  | $              | 69,447  |                   | $ | 81,546  |  
|                                          |  |                |         |                   |   |         |  
|                                          |  |                |         |                   |   |         |  
|Total liabilities and partners capital    |  | $              | 807,087 |                   | $ | 760,435 |  
|                                          |  |                |         |                   |   |         |  

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

3

---



U.S. Shipping Partners L.P.Unaudited Condensed Consolidated Statement of Operations and
Comprehensive Income
(in thousands; except per unit data)

|                                                         |  |                                      |         |      |   |         |  
|-------------------------------------------------------- |  | ------------------------------------ | ------- | ---- | - | ------- | -
|                                                         |  | For the Three Months Ended March 31, |        
|                                                         |  |                                      |        
|                                                         |  | 2009                                 |         | 2008 |  
|                                                         |  |                                      |         |      |  
|                                                         |  |                                      |         |      |   |         |  
|Revenues                                                 |  | $                                    | 47,929  |      | $ | 51,504  |  
|                                                         |  |                                      |         |      |   |         |  
|                                                         |  |                                      |         |      |   |         |  
|Operating expenses                                       |  |                                      |         |      |   |         |  
|Vessel operating expenses                                |  |                                      | 16,172  |      |   | 17,021  |  
|Voyage expenses                                          |  |                                      | 15,845  |      |   | 13,679  |  
|General and administrative expenses                      |  |                                      | 5,984   |      |   | 3,994   |  
|Depreciation and amortization expenses                   |  |                                      | 7,991   |      |   | 10,504  |  
|Impairment charges                                       |  |                                      |        |      |   | 5,720   |  
|Other expense (income)                                   |  |                                      |        |      |   | 67      |  
|                                                         |  |                                      |         |      |   |         |  
|Total operating expenses, net                            |  |                                      | 45,992  |      |   | 50,985  |  
|                                                         |  |                                      |         |      |   |         |  
|Operating income                                         |  |                                      | 1,937   |      |   | 519     |  
|Interest expense                                         |  |                                      | 16,303  |      |   | 7,891   |  
|Interest income                                          |  |                                      | (32     | )    |   | (1,040  | )
|Net gain on derivative financial instruments             |  |                                      | (1,150  | )    |   | (442    | )
|                                                         |  |                                      |         |      |   |         |  
|Loss before income taxes and noncontrolling interest     |  |                                      | (13,184 | )    |   | (5,890  | )
|Provision for income taxes                               |  |                                      | 54      |      |   | 292     |  
|                                                         |  |                                      |         |      |   |         |  
|Net loss                                                 |  |                                      | (13,238 | )    |   | (6,182  | )
|Net gain (loss)  attributable to noncontrolling interest |  |                                      | 443     |      |   | (404    | )
|                                                         |  |                                      |         |      |   |         |  
|Net loss attributable to USSLP unit holders              |  |                                      | (13,681 | )    |   | (5,778  | )
|Other comprehensive loss                                 |  |                                      |         |      |   |         |  
|Amortization of deferred loss from
 derivatives in AOCI  |  |                                      | 1,139   |      |   |        |  
|Fair market value adjustment for derivatives             |  |                                      |        |      |   | (8,703  | )
|                                                         |  |                                      |         |      |   |         |  
|Comprehensive loss                                       |  | $                                    | (12,542 | )    | $ | (14,481 | )
|                                                         |  |                                      |         |      |   |         |  
|                                                         |  |                                      |         |      |   |         |  
|General partners interest in net loss                   |  | $                                    | (274    | )    | $ | (116    | )
|                                                         |  |                                      |         |      |   |         |  
|Limited partners interest in net loss                   |  |                                      |         |      |   |         |  
|Net loss                                                 |  | $                                    | (13,407 | )    | $ | (5,662  | )
|Net loss per unit - basic and diluted                    |  | $                                    | (0.73   | )    | $ | (0.31   | )
|Weighted average units outstanding - basic               |  |                                      | 18,254  |      |   | 18,234  |  
|Weighted average units outstanding - diluted             |  |                                      | 18,254  |      |   | 18,234  |  

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

4

---



U.S. Shipping Partners L.P. Unaudited Condensed Consolidated Statement of Changes in Partners
Capital
(in thousands)

|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|--------------------------------------------------------- |  | ----------------- | ------ | ------------ | - | ----------- | - | ------------- | ----- | ------- | - | ------------- | - | ----------- | ------ | ----- | - | ------ |  | - | ------ | - | - | ------- | -
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   | Accumulated |        |       |  
|                                                          |  | Partners Capital |        | Non          |   | Other       |   |               |      
|                                                          |  |                   |        |              |   |             |   |               |      
|                                                          |  | Limited Partners  |        |              |   | Controlling |   | Comprehensive |       |         |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |  
|                                                          |  | Common            |        | Subordinated |   | General     |   | Interest in   |       | Income  |   |               |  
|                                                          |  | Units             |        | $            |   | Units       |   | $             |       | Partner |   | Joint Venture |   | (Loss)      |        | Total |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|Balance at
 January 1, 2009                               |  |                   | 11,353 |              | $ | 66,427      |   |               | 6,900 |         | $ | (68,292       | ) | $           | (2,149 | )     | $ | 93,854 |  | $ | (8,294 | ) | $ | 81,546  |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|Net loss                                                  |  |                   |       |              |   | (8,340      | ) |               |      |         |   | (5,067        | ) |             | (274   | )     |   |       |  |   |       |   |   | (13,681 | )
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|Amortization of deferred loss from derivatives in AOCI    |  |                   |       |              |   |            |   |               |      |         |   |              |   |             |       |       |   |       |  |   | 1,139  |   |   | 1,139   |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|Adjustments to Non
 Controlling Interest in Joint Venture |  |                   |       |              |   |            |   |               |      |         |   |              |   |             |       |       |   | 443    |  |   |       |   |   | 443     |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  
|Balance at
 March 31, 2009                                |  |                   | 11,353 |              | $ | 58,087      |   |               | 6,900 |         | $ | (73,359       | ) | $           | (2,423 | )     | $ | 94,297 |  | $ | (7,155 | ) | $ | 69,447  |  
|                                                          |  |                   |        |              |   |             |   |               |       |         |   |               |   |             |        |       |   |        |  |   |        |   |   |         |  

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

5

---



U.S. Shipping Partners L.P.Unaudited Condensed Consolidated Statement of Cash Flows
(in thousands)

|                                                                                                       |  |                                      |         |      |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------------------ | ------- | ---- | - | ------- | -
|                                                                                                       |  | For the Three Months Ended March 31, |        
|                                                                                                       |  |                                      |        
|                                                                                                       |  | 2009                                 |         | 2008 |  
|                                                                                                       |  |                                      |         |      |  
|Cash flows from operating activities                                                                   |  |                                      |         |      |   |         |  
|Net loss                                                                                               |  | $                                    | (13,681 | )    | $ | (5,778  | )
|Adjustments to reconcile net loss to net
 cash provided by operating activities                        |  |                                      |         |      |   |         |  
|Depreciation of vessels and equipment, and
 amortization of drydock costs and deferred financing costs |  |                                      | 10,244  |      |   | 10,968  |  
|Impairment charge                                                                                      |  |                                      |        |      |   | 5,720   |  
|Loss on sale of surplus equipment                                                                      |  |                                      |        |      |   | 67      |  
|Amortization of deferred loss from
 derivatives in AOCI                                                |  |                                      | 1,380   |      |   |        |  
|Benefit for accounts receivable                                                                        |  |                                      | (51     | )    |   | (90     | )
|Equity compensation                                                                                    |  |                                      |        |      |   | 37      |  
|Net gain on derivative financial
 instruments                                                          |  |                                      | (1,150  | )    |   | (442    | )
|Noncontrolling interest in Joint Venture                                                               |  |                                      | 443     |      |   | (404    | )
|Deferred income taxes                                                                                  |  |                                      |        |      |   | 192     |  
|Changes in assets and liabilities:                                                                     |  |                                      |         |      |   |         |  
|Accounts receivable                                                                                    |  |                                      | (1,527  | )    |   | 1,162   |  
|Prepaid expenses and other current assets                                                              |  |                                      | 7,601   |      |   | 1,178   |  
|Capitalized drydock costs                                                                              |  |                                      | (2,811  | )    |   | (1,966  | )
|Accounts payable                                                                                       |  |                                      | (1,901  | )    |   | (1,182  | )
|Interest added to debt outstanding                                                                     |  |                                      | 2,851   |      |   |        |  
|Deferred revenue                                                                                       |  |                                      | (6,165  | )    |   | (1,193  | )
|Accrued expenses and other liabilities                                                                 |  |                                      | 6,063   |      |   | (4,762  | )
|                                                                                                       |  |                                      |         |      |   |         |  
|Net cash provided by operating activities                                                              |  |                                      | 1,296   |      |   | 3,507   |  
|                                                                                                       |  |                                      |         |      |   |         |  
|                                                                                                       |  |                                      |         |      |   |         |  
|Cash flows from investing activities                                                                   |  |                                      |         |      |   |         |  
|Change in restricted cash and equivalents,
 net                                                        |  |                                      | 6,856   |      |   | 39,000  |  
|Sale of surplus equipment                                                                              |  |                                      |        |      |   | 138     |  
|Construction of vessels and equipment                                                                  |  |                                      | (73,765 | )    |   | (82,183 | )
|                                                                                                       |  |                                      |         |      |   |         |  
|Net
 cash used in investing activities                                                                 |  |                                      | (66,909 | )    |   | (43,045 | )
|                                                                                                       |  |                                      |         |      |   |         |  
|                                                                                                       |  |                                      |         |      |   |         |  
|Cash flows from financing activities                                                                   |  |                                      |         |      |   |         |  
|Proceeds from Joint Venture revolver
 borrowings                                                       |  |                                      |        |      |   | 29,895  |  
|Contribution by noncontrolling interest
 equity investors in Joint Venture                             |  |                                      |        |      |   | 17,936  |  
|Proceeds from revolver borrowings                                                                      |  |                                      | 68,383  |      |   |        |  
|Repayment of debt                                                                                      |  |                                      |        |      |   | (775    | )
|Distributions to partners                                                                              |  |                                      |        |      |   | (5,100  | )
|                                                                                                       |  |                                      |         |      |   |         |  
|Net cash provided by financing activities                                                              |  |                                      | 68,383  |      |   | 41,956  |  
|                                                                                                       |  |                                      |         |      |   |         |  
|                                                                                                       |  |                                      |         |      |   |         |  
|Net increase in cash and cash equivalents                                                              |  |                                      | 2,770   |      |   | 2,418   |  
|Cash and cash equivalents at beginning of
 period                                                      |  |                                      | 20,599  |      |   | 21,604  |  
|                                                                                                       |  |                                      |         |      |   |         |  
|Cash and cash equivalents at end of period                                                             |  | $                                    | 23,369  |      | $ | 24,022  |  
|                                                                                                       |  |                                      |         |      |   |         |  

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

6

---



U.S. Shipping Partners L.P.Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

|   |                     
|-- | --------------------
|1. | Nature of Operations

Entering
2008, U.S. Shipping Partners L.P. (the Partnership) owned and operated six
integrated tug barge units (ITBs), three chemical product, or parcel, tankers
(Parcel Tankers), one product tanker (Houston) and one articulated tug
barge (ATB). During the fourth quarter of 2008, the Partnership sold two
ITBs, the ITB
Groton and the ITB Jacksonville, due to decreased demand
for these vessels. The Partnerships second ATB, the ATB Galveston, was delivered
and entered service in August 2008 and the third ATB, the ATB Brownsville, was
delivered and entered service in November 2008.

As
of March 31, 2009, our fleet consists of eleven owned and operated tank
vessels: four ITBs, one product tanker, three chemical parcel tankers, and
three ATBs. The ATBCorpus Christi was delivered to us on
July 31, 2009 and entered service in August 2009. We also manage two product
tankers on behalf of a joint venture we formed to construct and operate five
product tankers (the Joint Venture), the Golden State, which entered service in
January 2009, and thePelican State, which entered service in
June 2009.

Our
primary customers are major oil and chemical companies.
For the three months ended March 31, 2009, three customers accounted for 10% or more of voyage revenue.
For the three months ended March 31, 2008, one customer accounted for 10% or more of voyage revenue.
 We do not assume
ownership of any of the products that we transport on our vessels. The
Partnership is engaged in transportation services between ports in the United
States, principally for refined petroleum products, petrochemical and commodity
chemical products. The vessels operate under the regulatory provisions of the
Jones Act. To improve utilization of the ITB fleet, the Partnership employed
its ITB fleet to transport grain overseas for humanitarian organizations.
Recognition principles of revenue and certain expenses for these voyages under
GAAP differ from the recognition principles applicable to our transportation of
petroleum, petrochemical and commodity chemical products. With respect to the
transportation of refined petroleum, petrochemical and commodity chemical
products, under GAAP we generally recognize revenue based upon the relative transit
time in each period to the total estimated transit time for each voyage. With
respect to our grain voyages, we only recognize revenue and certain voyage
expenses when the grain is delivered to its final destination.

In
the opinion of management, these unaudited financial statements reflect all
adjustments, consisting of normal and recurring entries, necessary for a fair
presentation of the financial results of such interim periods in accordance
with accounting principles generally accepted in the United States and have
been prepared pursuant to the rules of the Securities and Exchange Commission.
The results of operations for interim periods are not necessarily indicative of
the results of operations to be expected for a full year, particularly in light
of the fact that the Partnership and certain of its subsidiaries and affiliated
entities filed voluntary petitions for reorganization relief under the
bankruptcy code. These financial statements should be read together with the
consolidated financial statements and notes thereto included in the
Partnerships Annual Report on Form 10-K for the year ended December 31, 2008
(the Form 10-K).

In
the third quarter of 2008, the Partnership determined that it should have been
allocating gains and losses in respect of its joint venture to construct five
product tankers (the Joint Venture) in accordance with the expected economic
returns of the Joint Venture, rather than proportionally based on ownership
interest. As a result, the Partnership determined that it had been erroneously
allocating 60% of gains and losses to its Joint Venture partners via the
Noncontrolling Interest line since the inception of the Joint Venture in 2006.
The Partnership does not consider this error material to the historical
financial statements and has, therefore, revised this allocation by correcting
the error during the quarter ended September 30, 2008. Accordingly, all losses
from the Joint Venture are allocated to the Partnership and all gains from the
Joint Venture are allocated to the noncontrolling interest holder. The first
quarter 2008 impact of this out of period adjustment would have been an
additional allocation of $404 in losses to the Partnership, recorded through
the Noncontrolling Interest line.

The
liquidity pressures facing the Partnership described in its Form 10-K for the
year ended December 31, 2008 continued in the first quarter of 2009 and led to
the Partnership, together with all of its wholly-owned subsidiaries, US
Shipping General Partner LLC, its general partner (USSGP), and USS Vessel
Management LLC, a wholly-owned subsidiary of USSGP (collectively, the
Company) filing for bankruptcy on April 29, 2009 as further described
below in Note 2, Proceedings Under Chapter 11 of the Bankruptcy Code. The
Joint Venture was not part of the bankruptcy filing. The ability of the
Partnership to continue as a going concern is dependent upon, among other
things, (i) the Partnerships ability to comply with the terms and
conditions of the cash collateral order entered by the Bankruptcy Court in
connection with the Bankruptcy Cases (defined below); (ii) the ability of
the Partnership to generate cash from operations; (iii) the ability of the
Partnership to obtain confirmation of and to consummate the Plan or another
plan of reorganization under the Bankruptcy Code; and (iv) the cost,
duration and outcome of the reorganization process. Uncertainty as to the
outcome of these factors raises substantial doubt about the Partnerships
ability to continue as a going concern. We are currently evaluating various
courses of action to address the operational and liquidity issues the
Partnership is facing, and formulating plans for improving operations. There
can be no assurance that any of these efforts will be successful.
Consistent with generally accepted accounting principles preparing these unaudited
consolidated financial statements on a going concern basis contemplates the
realization of assets and the discharge of liabilities in the normal course of
business for the foreseeable future.
These
unaudited consolidated financial statements do not include any adjustments that
might result should the Partnership be unable to continue as a going concern.

7

---



U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated
Financial Statements
(dollars in thousands; except per unit data)

|   |                                                    
|-- | ---------------------------------------------------
|2. | Proceedings Under Chapter 11 of the Bankruptcy Code

Effective
April 29, 2009, the Partnership, together with all of its wholly-owned
subsidiaries, USSGP, and USS Vessel Management LLC, filed voluntary petitions
for reorganization relief under Chapter 11 of Title 11 of the United States
Bankruptcy Code (the Bankruptcy Code) in the United States Bankruptcy Court
for the Southern District of New York (the Bankruptcy Court) (the Bankruptcy
Filing). Immediately prior to the Bankruptcy Filing, the Company entered into
a Plan Support Agreement (the April PSA) with the holders of (i) in excess of
two-thirds of the amounts (including without limitation in respect of the
termination obligations under the interest rate swaps) due under the
Partnerships Third Amended and Restated Credit Agreement, dated as of August
7, 2006, as amended, by and among the Partnership, certain subsidiaries of the
Partnership, Canadian Imperial Bank of Commerce, as administrative agent, and
the lenders and other agents party thereto (the lenders thereunder the Senior Secured Lenders) and (ii)
approximately 70% of the amounts due in respect of the Partnerships 13% Senior
Secured Notes due 2014 (the Second
Lien Notes). On July 10, 2009, the Partnership and a majority in
interest of each of the Senior Secured Lenders and holders of Second Lien Notes
who were party to the April PSA entered into a First Amendment to Plan Support
Agreement (the April PSA as amended by the First Amendment, the Amended Plan
Support Agreement) pursuant to which the Partnership and the lenders party to
the April PSA adjusted certain milestones related to the Companys bankruptcy
proceedings and amended the terms and conditions of the proposed plan of
reorganization as set forth in the Plan Term Sheet attached as Exhibit A to the
April PSA.

The
parties to the Amended Plan Support Agreement have agreed to support a plan of
reorganization for the Company on the terms and conditions set forth in the
Plan Term Sheet attached as Exhibit A to the Amended Plan Support Agreement.
They have also agreed not to support, directly or indirectly, any other plan,
in exchange for the Companys agreement to implement all steps necessary to
solicit the requisite acceptances of the Plan (as defined below) and obtain
from the Bankruptcy Court an order confirming the Plan substantially in
accordance with the terms of the Amended Plan Support Agreement. The Amended
Plan Support Agreement may be terminated under certain circumstances, including
in the event that the Plan and related disclosure statement are not approved by
certain deadlines, the Plan is not consummated within a certain period of time
after its filing with the Bankruptcy Court, a party materially breaches the
Amended Plan Support Agreement, the Chapter 11 cases are converted to cases
under Chapter 7 of the Bankruptcy Code or the Bankruptcy Court grants relief
that is inconsistent with the Amended Plan Support Agreement or the Plan Term
Sheet.

On
August 6, 2009, the Company filed its First Amended Joint Plan of
Reorganization with the Bankruptcy Court (the Plan). Under the Plan:

| |   |                                          
| | - | -----------------------------------------
| | · | The Senior Secured Lenders
 will receive:

| |  |     |                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                           
| |  | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (i) | new senior secured term
 notes issued by reorganized USSP (Reorganized
 USSP) in an aggregate principal amount equal to $240,000 and
 guaranteed by the other reorganized debtors. The senior secured term notes
 will:
| |  |     |                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                           
| |  |     | (A)                                                                                                                                                                                                                       | be secured by a first
 priority lien on substantially all of the assets of the reorganized debtors;                                                                                                                                                                                                                       
| |  |     |                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                           
| |  |     | (B)                                                                                                                                                                                                                       | require quarterly
 mandatory prepayment from excess cash flow (as defined in the Plan) once the
 reorganized debtors have achieved a $25,000 cash balance in the first year
 following the Companys emergence from bankruptcy and a $20,000 (subject to
 adjustment under certain circumstances) cash balance thereafter;
| |  |     |                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                           
| |  |     | (C)                                                                                                                                                                                                                       | amortize at the annual
 rate of 1% of the aggregate amount of the new senior secured term notes
 beginning in the first full year following the Companys emergence from
 bankruptcy;                                                                                                                                     

8

---



U.S. Shipping Partners L.P.Notes to Unaudited Condensed Consolidated
Financial Statements
(dollars in thousands; except per unit data)

| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |       | (D)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | have a final maturity date
 of August 7, 2013;                                                                                                                                                                                                                                                                                                                                     
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (E)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | bear interest at a rate of
 LIBOR plus 7.20%, subject to a 2% LIBOR floor; and                                                                                                                                                                                                                                                                                                     
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (F)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | be subject to certain
 customary covenants, including without limitation an interest coverage test
 (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage
 ratio to be determined (but consistent with the interest coverage test and
 the projections provided by the Partnership to the Senior Secured Lenders).                                             
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | (ii)  | new junior secured term
 notes issued by Reorganized USSP
 in an aggregate principal amount equal to $60,000 and guaranteed by the other
 reorganized debtors. The junior secured term notes will:                                                                                                                                                                                                                                                                                                  
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (A)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | be secured by a second
 priority lien on substantially all of the assets of the reorganized debtors;                                                                                                                                                                                                                                                                               
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | require, after the senior
 secured term notes are repaid in full, quarterly mandatory prepayment from
 excess cash flow (as defined in the Plan once the reorganized debtors have
 achieved a $25,000 cash balance in the first year following the Companys
 emergence from bankruptcy and a $20,000 (subject to adjustment under certain
 circumstances) cash balance thereafter;
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (C)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | amortize, after the senior
 secured term notes are repaid in full, at the annual rate of 1% of the
 aggregate amount of the new junior secured term notes;                                                                                                                                                                                                                         
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (D)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | have a final maturity date
 of August 7, 2013;                                                                                                                                                                                                                                                                                                                                     
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (E)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | bear interest at a rate of
 LIBOR plus 0.50%, subject to a 2% LIBOR floor; and                                                                                                                                                                                                                                                                                                     
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  |       | (F)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | be subject to certain
 customary covenants, including without limitation an interest coverage test
 (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage
 ratio to be determined (but consistent with the interest coverage test and
 the projections provided by the Partnership to the Senior Secured Lenders).                                             
| |  |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                    
| |  | (iii) | all of Reorganized USSPs
 Class A Common Stock, representing fifty percent (50%) of Reorganized USSPs
 common stock on a fully diluted basis before giving effect to the Class B
 Common Stock to be issued pursuant to a management equity plan described
 below, provided that Senior Secured Lenders that are not U.S. Citizens for
 U.S. Coastwise Trade Law purposes will receive a combination of Class A
 Common Stock and warrants to purchase Class A Common Stock (Class A
 Warrants).

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | The holders of the Second
 Lien Notes will receive shares of Class B Common Stock representing, on a
 fully diluted basis, fifty percent (50%) of the common stock of Reorganized
 USSP, before giving effect to the Class B Common Stock to be issued pursuant
 to a management equity plan described below, provided that holders of the
 Second Lien Notes that are not U.S. Citizens for U.S. Coastwise Trade Law
 purposes will receive a combination of Class B Common Stock and warrants to
 purchase Class B Common Stock. The Second Lien Notes will be cancelled.                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | · | The Class A Common Stock
 and the Class B Common Stock will have the same ownership and voting rights,
 provided that dividends and other distributions declared in respect of
 Reorganized USSPs common stock will first be distributed in respect of the
 Class A Common Stock in an amount equal to, in aggregate, approximately
 $54,000 (dependent on the termination value of our interest rate swaps), the
 unpaid portion of which will increase by four percent (4%) per year (non-compounded)
 (the Priority Distribution Amount). The Class A Warrants will provide that
 in the event Reorganized USSP makes a distribution to holders of Class A
 Common Stock in respect of the Priority Distribution Amount, each holder of
 such Class A Warrant will receive a cash payment equal to the amount it would
 have received had it exercised its Class A Warrant immediately prior to such
 distribution being made and owned Class A Common Stock as the time such
 distribution was being made.

9

---



U.S. Shipping Partners L.P.Notes to Unaudited Condensed Consolidated
Financial Statements
(dollars in thousands; except per unit data)

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | In no event will persons
 who are not U.S. Citizens for U.S. Coastwise Trade Law be issued common stock
 of Reorganized USSP representing in aggregate more than 23% of the common
 stock to be outstanding on the date the Company emerges from bankruptcy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | Reorganized USSP will
 adopt a management equity plan providing for the issuance to management of
 18.18% of the Class B Common Stock, representing on a fully-diluted basis 10%
 of the outstanding common stock of Reorganized USSP. Fifty percent (50%) of
 such equity to be available under the plan will be issued to management at
 the time the Company emerges from bankruptcy, with 25% vesting immediately
 and an additional 25% vesting on the first, second and third anniversaries of
 the Companys emergence from bankruptcy. The remaining fifty percent (50%)
 available under the management equity plan will be issuable from time to time
 as determined by the board of directors of Reorganized USSP.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | The warrants to be issued
 to the persons who are not U.S. Citizens for U.S. Coastwise Trade Law
 purposes will have an exercise price of $0.001 per share, will expire
 December 31, 2029 and may only be exercised by persons who are U.S. Citizens
 for U.S. Coastwise Trade Law purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | The existing and
 outstanding common units, subordinated units and general partnership
 interests of USSP will be cancelled without the payment of any amount to the
 holders thereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | Customary releases will be
 provided to the Company, its current and former officers and directors, the
 Senior Secured Lenders, the holders of the Second Lien Notes, the various
 agents and trustees under the debt agreements and the respective officers,
 directors, employees, agents, advisors and professionals of each of the
 foregoing, subject to specified exceptions.                                                                                                                                                                                                                                                                                                                                         

The
implementation of the Plan is dependent upon a number of factors, including
final documentation, the approval of a disclosure statement and confirmation
and consummation of the Plan in accordance with the provisions of the
Bankruptcy Code.

Refer
to Note 3Proceedings Under Chapter 11 of the Bankruptcy Code in the
Partnerships Annual Report on Form 10-K for the year ended December 31, 2008
and our various Bankruptcy Court filings for additional information on our
Proceedings Under Chapter 11 of the Bankruptcy Code.

|   |                              
|-- | -----------------------------
|3. | New Accounting Pronouncements

On
March 31, 2009, the Partnership adopted FASB Staff Position (FSP) No. FAS
157-4, ―Determining Fair Value When the Volume and Level of Activity for
the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, (FSP FAS 157-4). FSP FAS 157-4 provides
additional guidance for estimating fair value in accordance with SFAS 157 when
the volume and level of activity for the asset or liability have significantly
decreased and includes guidance for identifying circumstances that indicate a
transaction is not orderly. This guidance is necessary to maintain the overall
objective of fair value measurements, which is that fair value is the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date under
current market conditions. The adoption of FSP FAS 157-4 had no impact on the
Financial Statements.

On
January 1, 2009, the Partnership adopted SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of
ARB No. 51, (SFAS 160). SFAS 160 amends Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This pronouncement, among other requirements,
requires entities with noncontrolling interests to classify noncontrolling
interests as components of equity. This pronouncement requires entities to be
viewed for reporting purposes from an economic unit perspective rather than a
controlling interest perspective. The Partnership adopted FAS Statement No. 160
effective January 1, 2009 and reclassified the 60% noncontrolling interest of
the Partnerships Joint Venture in its consolidated balance sheet to the equity
section.

On
January 1, 2009, the Partnership adopted SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activitiesan amendment of FASB
Statement No. 133, (SFAS 161). SFAS 161 requires enhanced disclosures
about an entitys derivative and hedging activities, including (i) how and
why an entity uses derivative instruments, (ii) how derivative instruments
and related hedged items are accounted for under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended (SFAS 133), and
(iii) how derivative instruments and related hedged items affect an
entitys financial position, financial performance, and cash flows. Other than
the required disclosures (see Note 11,  Hedging), the adoption of SFAS 161
had no impact on the Financial Statements.

10

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

In
May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 165, ―Subsequent Events, (SFAS 165). SFAS
165 establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. Specifically, SFAS 165 sets forth the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements, the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements, and the disclosures that an
entity should make about events or transactions that occurred after the balance
sheet date. SFAS 165 is effective for interim periods ending after June 15,
2009. The adoption of SFAS 165 is not
expected to have an impact on the Financial Statements as management already
followed a similar approach prior to the adoption of this standard (see Note
16, Subsequent Events).

In
June 2009, the FASB issued SFAS No. 167, ―Amendments to FASB
Interpretation No. 46(R), (SFAS 167). SFAS 167 amends FASB Interpretation No.
46 (Revised December 2003), ―Consolidation of Variable Interest
Entitiesan interpretation of ARB No. 51, (FIN 46(R)) to require an enterprise
to perform an analysis to determine whether the enterprises variable interest
or interests give it a controlling financial interest in a variable interest
entity; to require ongoing reassessments of whether an enterprise is the
primary beneficiary of a variable interest entity; to eliminate the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity; to add an additional reconsideration
event for determining whether an entity is a variable interest entity when any
changes in facts and circumstances occur such that holders of the equity
investment at risk, as a group, lose the power from voting rights or similar
rights of those investments to direct the activities of the entity that most
significantly impact the entitys economic performance; and to require enhanced
disclosures that will provide users of financial statements with more
transparent information about an enterprises involvement in a variable
interest entity. SFAS 167 becomes effective for the Partnership on January 1,
2010. Management is currently evaluating the potential impact of SFAS 167 on
the Financial Statements.

|   |                    
|-- | -------------------
|4. | Net Income per Unit

The units used
for basic net loss per unit and diluted net loss per unit are reconciled below
(in thousands):

|                                                                                                                                                                     |  |                                       |        |      |  |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ------ | 
|                                                                                                                                                                     |  | For the Three Months Ended  March 31, |       
|                                                                                                                                                                     |  |                                       |       
|                                                                                                                                                                     |  | 2009                                  |        | 2008 | 
|                                                                                                                                                                     |  |                                       |        |      | 
|                                                                                                                                                                     |  |                                       |        |      |  |        | 
|Weighted average units outstanding for
 basic net (loss) income per unit                                                                                             |  |                                       | 18,254 |      |  | 18,234 | 
|Dilutive effect of restricted units                                                                                                                                  |  |                                       |       |      |  |       | 
|                                                                                                                                                                     |  |                                       |        |      |  |        | 
|Weighted average units outstanding for
 dilutive net (loss) income per unit                                                                                          |  |                                       | 18,254 |      |  | 18,234 | 
|                                                                                                                                                                     |  |                                       |        |      |  |        | 
|                                                                                                                                                                    
|The
computation of diluted net loss per unit does not assume conversion, exercise
or issuance of units that would have an anti-dilutive impact on net loss per
unit.

Excluded
from the calculation of dilutive net loss per unit for the three months ended
March 31, 2008 were 6 restricted units. Since we had a net loss for the three
months ended March 31, 2008, any outstanding restricted stock units, unit
options and phantom units were excluded from the calculation of diluted net
loss per unit because their inclusion would have had an anti-dilutive effect. There
were no dilutive securities outstanding for the three months ended March 31,
2009.

11

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

|   |                                 
|-- | --------------------------------
|5. | Restricted
 Cash and Equivalents

On
August 7, 2006, an escrow account was established as part of the Partnerships
debt and equity financings to fund the construction of three new ATBs (the ATB
Escrow). Amounts are released from
escrow as needed to fund construction.
As of March 31, 2009 and December 31, 2008, the ATB Escrow balance was
$710 and $7,566, respectively.

Amounts
drawn on the ATB Escrow account for items expected to be paid in the second
quarter of 2009 were $2,887, and are included in cash and equivalents on the
Consolidated Balance Sheet at March 31, 2009 as these amounts were no longer
legally restricted as to use at March 31, 2009. Similar amounts included in
cash and equivalents totaled $439 at December 31, 2008. As the Partnership
projects all of the funds in the ATB Escrow will be used to satisfy obligations
due during the next twelve months, all such funds are classified as current
restricted cash and equivalents at March 31, 2009 and December 31, 2008.

|   |                      
|-- | ---------------------
|6. | Vessels and Equipment

Vessels
and equipment consisted of the following:

|                                                                            |  |                 |         |                    |   |         | 
|--------------------------------------------------------------------------- |  | --------------- | ------- | ------------------ | - | ------- | 
|                                                                            |  | March 31,
 2009 |         | December 31,
 2008 |  
|                                                                            |  |                 |         |                    |  
|Vessels - Partnership                                                       |  | $               | 395,299 |                    | $ | 395,299 | 
|Vessels - Joint Venture                                                     |  |                 | 146,485 |                    |   |        | 
|Office furniture, equipment and other                                       |  |                 | 448     |                    |   | 448     | 
|                                                                            |  |                 |         |                    |   |         | 
|                                                                            |  |                 | 542,232 |                    |   | 395,747 | 
|Less: Accumulated depreciation - Partnership                                |  |                 | 100,912 |                    |   | 95,782  | 
|Less: Accumulated depreciation - Joint Venture                              |  |                 | 1,211   |                    |   |        | 
|                                                                            |  |                 |         |                    |   |         | 
|Subtotal                                                                    |  |                 | 440,109 |                    |   | 299,965 | 
|                                                                            |  |                 |         |                    |   |         | 
|Construction-in-progress - Drydock                                          |  |                 |        |                    |   | 3,392   | 
|Construction-in-progress - ATBs                                            |  |                 | 66,048  |                    |   | 62,111  | 
|Construction-in-progress - Tankers                                          |  |                 | 243,083 |                    |   | 327,869 | 
|Capitalized drydock expenditures, net of amortization of $9,902 and
 $8,252 |  |                 | 13,608  |                    |   | 10,858  | 
|                                                                            |  |                 |         |                    |   |         | 
|                                                                            |  |                 |         |                    |   |         | 
|Total vessels and equipment, net                                            |  | $               | 762,848 |                    | $ | 704,195 | 
|                                                                            |  |                 |         |                    |   |         | 

Vessels
are recorded at cost, including capitalized interest and transaction fees where
appropriate, and depreciated to salvage value using the straight-line method as
follows: 10 years for the Chemical Pioneer, the Charleston and the Houston;
and 30 years for the ATB Freeport,the ATB Galvestonand theATB
Brownsville based on their respective estimated useful lives. The
ITBs are being depreciated to recoverable value over their remaining estimated
depreciable lives through September 2010.
Office furniture, equipment and other are depreciated over the estimated
useful life of three to ten 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. Leasehold improvements are capitalized and
depreciated over the shorter of their useful life or the remaining term of the
lease.

The
Partnership reviews the net book value of vessels for potential impairment
whenever events or changes in circumstances indicate that the carrying amount
of a vessel may not be fully recoverable. In the current period, the
Partnership has not recorded any charges as a result of changes in the carrying
value of any of the Partnerships vessels.

We
currently anticipate scrapping the Sea Venture and selling the ITB New York
in the second half of 2009 unless market conditions improve.

At
March 31, 2009, vessels include the
Golden
State, which entered into service for the Joint Venture on January
9, 2009. It was completed at a total cost of $139,029 (excluding capitalized
interest of $7,455).

12

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

Vessels
are required by both domestic (United States Coast Guard) and international
(International Maritime Organization) regulatory bodies to be inspected twice
every five years. To date, our ITBs have participated in the Underwater
Inspection In Lieu of Drydock (UWILD) Program which allows vessels to be
drydocked once every five years with a mid-period UWILD. In April 2007, we were
advised by the U.S. Coast Guard that it will allow continued participation in
the UWILD Program of non-or double hulled tank barges that are over 15 years of
age if they only trade domestically. The Partnership expects to continue
to participate in the UWILD Program. If the Partnership is required to conduct
a second drydock in each five year period rather than rely on an underwater
survey, the ITBs will be out of service longer and drydock expenditures will be
higher than the time required for and the cost of conducting an underwater
survey. Because of the age of the ITBs, their continued participation in the
UWILD Program is now conditioned on their undergoing an enhanced survey during
the UWILD, resulting in the vessel being off-hire, and not earning revenue, for
an additional 12 days each time a survey is conducted; however, under
international maritime organization regulations, in order for it to continue to
trade internationally (including grain voyages), it will have to undergo two
drydockings in each five year period, rather than a drydocking and a UWILD. Additionally,
vessels may have to be drydocked in the event of accidents or other unforeseen
damage. The Partnerships recently constructed ATB Freeport, ATB
Galveston
and ATB
Brownsville
and the remaining newbuild ATB qualify for the UWILD Program. The Senior Credit
Facility prohibits the Partnership from drydocking any of the ITBs without the
prior consent of the senior lenders. If the Partnership is not permitted to
drydock the ITBs, it will be required to take them out of service.

There
were no drydocks in progress at March 31, 2009 and one at December 31, 2008.
Capitalized drydock expenditures of $4,400 and $2,410 were accrued at March 31,
2009 and December 31, 2008, respectively.

Depreciation
of vessels and equipment for the quarters ended March 31, 2009 and 2008 were
$6,341 and $6,020, respectively. Amortization of drydocking expenditures was
$1,650 and $4,484 for the quarters ended March 31, 2009 and 2008, respectively.

At
March 31, 2009 and December 31, 2008, Construction in-progress-ATBs, all of
which relates to the ATB Corpus Christi, which was completed in
July 2009 and entered service in August 2009, includes capitalized interest of
$6,783 and $5,054, respectively, and accrued liabilities of $598 and
$2,631, respectively. At March 31, 2009 and December 31, 2008,
Construction-in-progress-tankers includes capitalized interest of $18,803 and
$23,574, respectively, and accrued liabilities of $69 and $6,086, respectively.

During
the quarter ended March 31, 2008, the Partnership determined that the value of
construction in progress of the fourth ATB unit referenced above was impaired,
as the Partnership did not obtain financing for its construction. Management assessed the fair value of the
construction in progress of this ATB unit at zero which resulted in a non-cash
impairment charge of $5,720.

|   |                         
|-- | ------------------------
|7. | Deferred Financing Costs

As
a result of the Partnership not being in compliance with certain financial
covenants at September 30, 2008 and December 31, 2008 and as a result of the
senior lender waiver for non-compliance initially expiring at January 31, 2009,
the Partnership accelerated the amortization period for deferred financing
costs to January 31, 2009. For the quarters ended March 31, 2009 and 2008,
deferred financing costs of the Partnership (excluding those of the Joint
Venture) of $2,253 and $464, respectively, were amortized and included in
interest expense in the accompanying Unaudited Consolidated Statements of
Operations and Comprehensive Income, and a portion is included in
Construction-in-progress-ATBs and Vessels as part of the capitalized interest
portion of the Partnerships ongoing project to construct ATBs.

As
a result of the Partnership receiving a notice from the agent for the lenders
to the Joint Venture asserting that events of default under certain revolving
notes facility agreement with the Joint Venture have occurred, which the
Partnership disputes, the Partnership wrote off the Joint Ventures remaining
net deferred financing costs at December 31, 2008. For the quarters ended March
31, 2009 and 2008, deferred financing costs of $0 and $627, respectively, were
amortized and included in construction-in-progress-tankers as part of the
capitalized interest portion of the Joint Ventures ongoing project to
construct tankers.

13

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

|   |                                        
|-- | ---------------------------------------
|8. | Accrued
 Expenses and Other Liabilities

Accrued
expenses and other liabilities consisted of the following:

|                        |  |                 |        |                    |   |        | 
|----------------------- |  | --------------- | ------ | ------------------ | - | ------ | 
|                        |  | March 31,
 2009 |        | December 31,
 2008 |  
|                        |  |                 |        |                    |  
|Interest                |  | $               | 21,735 |                    | $ | 12,757 | 
|Insurance claims        |  |                 | 3,007  |                    |   | 3,061  | 
|Taxes payable           |  |                 | 1,527  |                    |   | 1,597  | 
|Construction of vessels |  |                 | 629    |                    |   | 6,795  | 
|Accrued fuel charges    |  |                 | 241    |                    |   | 511    | 
|Other                   |  |                 | 3,799  |                    |   | 5,472  | 
|                        |  |                 |        |                    |   |        | 
|Total                   |  | $               | 30,938 |                    | $ | 30,193 | 
|                        |  |                 |        |                    |   |        | 

|   |     
|-- | ----
|9. | Debt

The
Partnerships outstanding debt consisted of the following:

|                                                                                                                                                                                                                                                                                                                     |  |                 |         |                    |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ------- | ------------------ | - | ------- | 
|                                                                                                                                                                                                                                                                                                                     |  | March 31,
 2009 |         | December 31,
 2008 |  
|                                                                                                                                                                                                                                                                                                                     |  |                 |         |                    |  
|Third Amended and Restated Credit Facility
 - Term, bearing interest at base rate (4.25%) plus LIBOR floor (3.25%); 7.5%
 at March 31, 2009 and December 31, 2008 including $3,410 PIK accrued interest
 of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from January 31,
 2009 to March 31, 2009         |  | $               | 301,191 |                    | $ | 298,639 | 
|Third Amended and Restated Credit Facility
 - Revolving Notes bearing interest at base rate (4.25%) plus LIBOR floor
 (3.25%); 7.5% at March 31, 2009 and December 31, 2008 including $386 PIK accrued
 interest of 1.5% from October 24, 2008 to January 30, 2009 and 4.5% from
 January 31, 2009 to March 31, 2009 |  |                 | 35,234  |                    |   | 34,935  | 
|13% Senior Secured Notes due 2014                                                                                                                                                                                                                                                                                    |  |                 | 100,000 |                    |   | 100,000 | 
|Revolving Notes Facility - Joint Venture,
 bearing interest at LIBOR plus 4.5%; 5.06% at March 31, 2009 and 5.46% at
 December 31, 2008                                                                                                                                                                              |  |                 | 245,104 |                    |   | 176,721 | 
|                                                                                                                                                                                                                                                                                                                     |  |                 |         |                    |   |         | 
|Total                                                                                                                                                                                                                                                                                                                |  |                 | 681,529 |                    |   | 610,295 | 
|Less: Current portion of long-term debt                                                                                                                                                                                                                                                                              |  |                 | 681,529 |                    |   | 610,295 | 
|                                                                                                                                                                                                                                                                                                                     |  |                 |         |                    |   |         | 
|Long-term debt                                                                                                                                                                                                                                                                                                       |  | $               |        |                    | $ |        | 
|                                                                                                                                                                                                                                                                                                                     |  |                 |         |                    |   |         | 

Capitalized
interest expense for the quarters ended March 31, 2009 and 2008 was $5,843 and
$5,249, respectively.

Senior
Credit Facility

On
December 30, 2008, the Partnership entered into a Forbearance Agreement with
the lenders under the Third Amended and Restated Credit Facility (the Senior
Credit Facility), which was extended several times and amended and restated on
March 13, 2009, and which was scheduled to terminate on April 30, 2009.
Pursuant to the forbearance agreements, our lenders agreed not to take any
action as a result of the Partnerships failure to make both the December 31,
2008 and March 31, 2009 principal and interest payments under the Senior Credit
Facility, our failure to be in compliance with certain of our financial
covenants at September 30, 2008 and December 31, 2008, and our failure to make
the scheduled interest payment due in respect of our Second Lien Notes on March
17, 2009. During the term of the
forbearance agreements, the Partnership agreed to engage in good faith
negotiations with the administrative agent and the lenders regarding
restructuring and strategic alternatives, including a possible sale of the
Partnership. The Partnership filed for protection under the U.S.
bankruptcy laws prior to the expiration
of the most recent forbearance period. See Note 2Proceedings Under Chapter 11
of the Bankruptcy Code.

As
the Partnerships Senior Credit Facility is callable, the Partnership has
classified it as current at March 31, 2009 and December 31, 2008.

14

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

On
March 31, 2009, the debt associated with our Senior Credit
Facility was quoted at an average price of approximately $0.407 to the dollar,
which results in an implied market value of $136,925. In addition, our Second
Lien Notes had an implied market value of $0.10 to the dollar, yielding an
implied market value of $10,000.

Second
Lien Notes

At
March 31, 2009 and December 31, 2008 the Partnership had accrued $7,559 and
$4,875 of interest on the Second Lien Notes, respectively. In February 2009,
holders of $91,290 of the Second Lien Notes, representing 91.29% of the Second
Lien Notes, delivered letters to the Partnership waiving their February 15,
2009 interest payment on the Second Lien Notes, and all future interest
payments on the Second Lien Notes, until the earlier of six months following
repayment in full of all amounts outstanding under the Senior Credit Facility
and the Partnership seeking bankruptcy protection. On March 17, 2009, the
Partnership provided $566 to the trustee to pay the interest due on the $8,710
principal amount of the Second Lien Notes for which the February 15, 2009
interest payment had not been waived.

Because
the indenture governing the Second Lien Notes contains cross-default provisions
that accelerate payment of the Second Lien Notes if there is a payment default
or acceleration of the Senior Secured Facility, the Second Lien Notes have also
been classified as current at March 31, 2009 and December 31, 2008.

Joint
Venture Credit Facility

On
August 7, 2006, the Joint Venture entered into a Revolving Notes Facility
Agreement (the Revolver) pursuant to which affiliates of The Blackstone Group
and other parties (the Joint Venture Lenders) made available $325,000 of
revolving credit loans, of which $245,104 and $176,721 were drawn as of March
31, 2009 and December 31, 2008, respectively.

The
Partnership received notice from the agent for the Joint Venture Lenders
asserting that events of default under the Revolver have occurred and that the
lenders were intending to foreclose on the Golden State vessel owned by the Joint
Venture that the Partnership is managing pursuant to the management agreement.
Because of the purported defaults, which could result in all amounts due
under the Revolver becoming immediately due and payable if such defaults were
actually determined to have occurred, which the Partnership disputes, these
amounts have been classified as current at March 31, 2009 and December 31,
2008. For further information, refer to
Note 16Subsequent EventsSettlement of Litigation with Joint Venture
Investors.

At March
31, 2009, the estimated fair value of the Joint Ventures current debt equaled
its carrying value of $245,104.

|    |             
|--- | ------------
|10. | Income Taxes

Prior
to January 1, 2009, for federal income tax purposes, the Partnership took the
position that it was a partnership that is not subject to federal income tax
(excluding certain subsidiaries which are subject to corporate level taxation)
based on the fact that at least 90% of its gross income in each year consisted
of certain identified types of qualifying income (which includes dividends
from subsidiary corporations and income from the transportation of minerals and
natural resources, including gas, oil or products thereof).

On December 19, 2008, because of its increase in nonqualifying income and the likelihood that
less than 90% of its gross income will be qualifying income, the Partnership
elected to be classified as a corporation beginning January 1, 2009. Prior to
this election, certain subsidiaries were already treated as corporations for
tax purposes. At the time of this election, the tax basis of the assets and
liabilities in the Partnership differed from the book basis, however, no net
deferred tax asset was recorded as a full valuation allowance was established
against this deferred tax asset.

The
Partnership provides deferred income taxes for the tax effects of differences
between the financial reporting and tax bases of its assets and liabilities
which are recorded at enacted tax rates in effect for the years in which the
differences are projected to reverse. The Partnership evaluates the
recoverability of deferred tax assets and establishes a valuation allowance
when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The Partnership determined that it is more likely
than not that certain deferred tax assets that existed as of December 31, 2008
will not be realized and, accordingly, provided a valuation allowance of
$60,552 against these deferred tax assets. At March 31, 2009 and December 31,
2008, the Partnership had current deferred tax assets net of valuation allowances of
$2,720 and $2,720, respectively. At March 31, 2009 and December 31, 2008, the
Partnership had non-current deferred tax liabilities of $2,720 and $2,720, respectively.

15

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

At
March 31, 2009 and December 31, 2008, the Partnership had $19,246 and $19,201
of unrecognized tax benefits, respectively. At March 31, 2009 and December 31,
2008, the Partnership had approximately $201 and $193, respectively, of accrued
interest and penalties related to uncertain tax positions. In the three month
period ended March 31, 2009 and 2008, the Partnerships Unaudited Condensed
Consolidated Statement of Operations included $54 and $98 of unrecognized tax
benefits, respectively. There were no other increases or decreases in
unrecognized tax benefits during the period related to the lapse of any statute
of limitations, settlements with taxing authorities, or changes in the
Partnerships assessment of whether it was more likely than not to prevail
based on the technical merits of any tax position taken in prior periods. The
tax years 2002-2008 remain open to examination by the major taxing
jurisdictions in which the Partnership is subject to tax.

|    |        
|--- | -------
|11. | Hedging

Partnership
Hedging

In
connection with entering into the Senior Credit Facility in 2006, the
Partnership entered into an interest rate swap with a notional amount of
$125,000 that effectively converted a portion of the floating LIBOR-based
payments of its Senior Credit Facility to a fixed rate of 8.9%. The fair value
of this hedge was a liability of $8,575, net of a credit risk adjustment of 39%
at March 31, 2009 and a liability of $9,167 at December 31, 2008. This contract
was originally designated as a cash flow hedge. As a result of the October 20,
2008 amendment to the Senior Credit Facility, the Partnership determined that as of October 1, 2008, this contract no
longer met the hedge effectiveness requirements and accordingly, discontinued
the hedge accounting treatment. Any subsequent gains or losses due to change in
fair value of the contract beginning October 1, 2008 were recorded to earnings.
The fair value of this contract at September 30, 2008 is reflected in other
comprehensive income in the accompanying financial statements. The change in
fair value for the period January 1, 2009 through March 31, 2009 has been
recorded in earnings as a gain of $593. This hedge was early terminated by the
counterparty as a result of the Partnerships bankruptcy filing.

In
December 2006, the Partnership entered into an interest rate swap with a
notional amount of $99,750 that effectively converted a portion of the floating
LIBOR-based payments of its Senior Credit Facility to a fixed rate of 8.4%. The
fair value of this hedge was a liability of $6,028, net of a credit risk
adjustment of 39% at March 31, 2009 and a liability of $6,396 at December 31,
2008. This contract was originally designated as a cash flow
hedge. As a result of the October 20, 2008 amendment to the Senior Credit
Facility, the Partnership determined that as of October 1, 2008, this contract no longer met the hedge effectiveness
requirements and accordingly, discontinued the hedge accounting treatment. Any
subsequent gains or losses due to change in fair value of the contract
beginning October 1, 2008 were recorded to earnings. The fair value of this
contract at September 30, 2008 is reflected in other comprehensive income in
the accompanying financial statements. The change in fair value for the period
January 1, 2009 through March 31, 2009 has been recorded in earnings as a gain
of $368. This hedge was early terminated by the counterparty as a result of the
Partnerships bankruptcy filing.

In
February 2006, the Partnership entered into contracts, denominated in Euros,
for the purchase of owner-furnished items costing approximately $14,439
relative to the Partnerships newbuild ATB series. To hedge the exposure to
foreign currency, the Partnership entered into a series of foreign currency
forward contracts effective through June 5, 2009, with an average exchange rate
of $1.25/Euro. These contracts were originally designated as cash flow hedges,
and through February 2008, the fair value of these contracts was included in
other comprehensive income. Subsequent
to February 2008, the Partnership received $827 and recorded this in earnings
related to the Partnerships foreign currency hedges that were terminated given
that the related underlying contract payments for owner furnished equipment for
one of the ATBs was cancelled. As
of December 31, 2008, all contracts for this hedge have been satisfied.

16

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

Joint
Venture Hedging

On
February 27, 2007, the Joint Venture purchased a nine year interest rate cap
with a notional amount of $100,000 effective April 1, 2007 for $1,924,
including transaction fees. This interest rate cap of the three month U.S.
Dollar LIBOR of 6% is part of a hedging strategy in place at the Joint Venture
to protect the value of its vessels and the chartering contracts thereon. Upon
the completion of the construction of each vessel, the Joint Venture expects to
sell the vessel together with any chartering contract that may be in place on
such vessel. Since the long-term chartering contracts entered into by the Joint
Venture will result in a fixed stream of cash flows over a multi-year period,
the value that the Joint Venture may be able to obtain upon the sale of the
combined vessel and chartering contract is subject to volatility based upon how
interest rates fluctuate. The interest rate cap is intended to reduce the
potential negative impacts to the Joint Ventures cash flows that could result
in movements in interest rates between the date a chartering contract was
entered into for the first product tanker in December 2006 and the anticipated
sale date of such combined vessel and chartering contract. The Joint Venture
does not plan to hold or issue derivative financial instruments for trading
purposes, but has not performed the activities necessary to qualify the
contract for hedge accounting treatment under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended. The fair market value of the interest
rate cap at March 31, 2009 and December 31, 2008 was a receivable of $965 and
$775, respectively and is recorded in Other Assets on the Consolidated
Balance Sheets. The change in the fair value of the instrument was a gain of
$189 and a loss of $264 for the three months ended March 31, 2009 and 2008,
respectively, and is recorded as a gain and loss, respectively,
on derivative financial instruments in the accompanying Consolidated Statements
of Operations and Comprehensive Income.

|    |                   
|--- | ------------------
|12. | Partners
 Capital

The
Partnerships general partner has 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. Under the terms of our Senior Credit Facility
the Partnership is no longer permitted to make distributions to any of its
unitholders until all outstanding borrowings under the Senior Credit Facility
are repaid.

|    |                           
|--- | --------------------------
|13. | Related Party Transactions

General
Partner

General
and administrative expenses, including shore side employee expenses, certain
facility and lease costs, and wages and benefits for crew members are incurred
directly by the Partnerships general partner. These amounts are reimbursable
by the Partnership pursuant to the partnership agreement. Reimbursable amounts
expensed by the Partnership were $14,882 and $14,523, respectively, for the
quarters ended March 31, 2009 and 2008.

New
York Premise

On
December 22, 2008, the Partnership entered into a one year lease beginning
February 1, 2009 for the tenancy/residency of the Partnerships chief executive
officer. A security deposit of $17 was paid upon entering the lease. For the
quarters ended March 31, 2009 and 2008, the Partnership paid $25 and $0,
respectively in connection with this lease.

Third
Party Joint Venture Investors

As
a result of the formation the Joint Venture, the Partnership considers the
third party investors in the Joint Venture led by affiliates of The Blackstone
Group (the Joint Venture Investors) to be related parties. In connection with
the formation of the Joint Venture, the Joint Venture paid fees of $10,788 to
the Joint Venture Investors. For the three months ended March 31, 2009
and 2008, the Joint Venture has paid interest of $2,830 and $1,738, respectively, to the Joint
Venture Investors.

17

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

|    |                              
|--- | -----------------------------
|14. | Commitments and Contingencies

Severance
Obligations

In
October 2008, Mr. Gridley, the Partnerships former chairman and chief
executive officer, resigned as an employee of the general partner of the
Partnership. The Partnership had accrued severance of $1,251 of which $977
remains as of March 31, 2009. As a result of our bankruptcy filing, we are no
longer making severance payments to Mr. Gridley.

In
December 2008, Mr. Al Bergeron, the Partnerships vice president-chief
financial officer, left the Partnership and the general partner. The
Partnership had accrued severance of $930 of which $853 remains as of March 31,
2009. As a result of our bankruptcy filing, we are no longer making severance
payments to Mr. Bergeron.

Claims
and Litigation

At
March 31, 2009 and December 31, 2008, the Partnership has a liability for total
claims exposure, both insured and uninsured, of $3,007 and $3,061,
respectively, and a corresponding receivable from the insurance carrier of
$3,718 and $3,905, respectively.

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. Legal costs associated with such claims are expensed as incurred.

See
Note 16Subsequent EventsSettlement of Litigation with Joint Venture Investors
for information with respect to our litigation with the Joint Venture Investors
and Joint Venture Lenders.

ATB
Commitments

The
Partnership has contracted with Manitowoc Marine Group (MMG) for the
construction of a barge and has also
contracted with Eastern Shipbuilding Group, Inc. (Eastern) for the
construction of a tug, which was joined with the barge to complete its newest
and final ATB unit in the third quarter of 2009. The Partnership took delivery
of the ATB in August 2009 at a cost of approximately $71,335 (excluding
capitalized interest which totaled $6,783 at March 31, 2009). At March 31,
2009, the Partnership had restricted cash of $710 and funds in operating cash
of $2,887 which was used to pay costs incurred in 2009 to complete this final
ATB. The Partnership funded the approximately $8,285 of construction costs needed to complete the
final ATB and not in escrow from its operating cash flows.

|    |                                   
|--- | ----------------------------------
|15. | Supplemental Guarantor Information

Set forth
below is additional information regarding the financial position, results of
operations and cash flows of U.S. Shipping Partners L.P. and U.S. Shipping
Finance Corp. (together, the Issuers of the Partnerships $100,000 13% Senior
Secured Notes due 2014 (the Second Lien Notes)), the Partnerships subsidiary
guarantors of such Second Lien Notes and the Partnerships subsidiary
non-guarantors of such Second Lien Notes.

18

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

The
subsidiary co-issuer entity (U.S. Shipping Finance Corp.), which is a 100%
owned finance subsidiary of U.S. Shipping Partners L.P., commenced operations
on August 7, 2006, two of the non-guarantor subsidiaries (USS Products Investor
LLC and USS Product Carriers LLC) both commenced operations on August 7, 2006,
one non-guarantor subsidiary, USS ATB 3 LLC, did not commence operations until
May 2009 and the remaining non-guarantor subsidiary, USS ATB 4 LLC, never
commenced operations. In addition, all of the Partnerships wholly-owned
subsidiaries other than the non-guarantor subsidiaries identified above
guarantee the Second Lien Notes on a full and unconditional, joint and several
basis. There are no restrictions on the ability of U.S. Shipping Partners L.P.
to obtain funds from its wholly owned subsidiaries.

The Joint
Venture is contractually restricted from distributing assets to the Parent
entities, either by equity distribution or loan, without the consent of the
Joint Venture Investors, or alternately, upon the achievement of operational
and financial goals as established in the joint venture agreement.

19

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.Unaudited Consolidating Balance SheetAs of March 31, 2009 (in thousands)

|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|----------------------------------------- |  | -------- | ------- | -------------------- | - | ----------------------- | - | -------------------------------- | ------- | ----------- |  | ------- |  | - | -------- | - | - | ------- | -
|                                          |  | Parent * |         | Subsidiary
 Issuer * |   | Guarantor
 Subsidiaries |   | Non-
 Guarantor 
 Subsidiaries** |         | Adjustments |  | Total   | 
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         | 
|Assets                                    |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Current assets                            |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Cash and equivalents                      |  | $        |        |                      | $ |                        |   | $                                | 21,176  |             |  | 2,193   |  | $ |         |   | $ | 23,369  |  
|Restricted cash and equivalents           |  |          |        |                      |   |                        |   |                                  | 710     |             |  |        |  |   |         |   |   | 710     |  
|Accounts receivable, net                  |  |          |        |                      |   |                        |   |                                  | 6,470   |             |  | 13      |  |   |         |   |   | 6,483   |  
|Prepaid expenses and other current assets |  |          |        |                      |   |                        |   |                                  | 11,438  |             |  | 210     |  |   |         |   |   | 11,648  |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total current assets                      |  |          |        |                      |   |                        |   |                                  | 39,794  |             |  | 2,416   |  |   |         |   |   | 42,210  |  
|Investment in subsidiaries, net           |  |          | 188,148 |                      |   |                        |   |                                  |        |             |  |        |  |   | (188,148 | ) |   |        |  
|Intercompany receivable                   |  |          | 238,031 |                      |   | 60,465                  |   |                                  |        |             |  |        |  |   | (298,496 | ) |   |        |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Vessels and equipment, net                |  |          |        |                      |   |                        |   |                                  | 374,492 |             |  | 388,356 |  |   |         |   |   | 762,848 |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Other assets                              |  |          |        |                      |   |                        |   |                                  | 1,064   |             |  | 965     |  |   |         |   |   | 2,029   |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total assets                              |  | $        | 426,179 |                      | $ | 60,465                  |   | $                                | 415,351 |             |  | 391,737 |  | $ | (486,644 | ) | $ | 807,087 |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Liabilities and Partners Capital         |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Current liabilities                       |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Current portion of long-term debt         |  | $        | 436,425 |                      | $ | 100,000                 |   | $                                |        |             |  | 245,104 |  | $ | (100,000 | ) | $ | 681,529 |  
|Accounts payable                          |  |          |        |                      |   |                        |   |                                  | 1,727   |             |  |        |  |   |         |   |   | 1,727   |  
|Due to affiliates                         |  |          |        |                      |   |                        |   |                                  | 3,546   |             |  | 118     |  |   |         |   |   | 3,664   |  
|Accrued expenses and other liabilities    |  |          |        |                      |   |                        |   |                                  | 29,760  |             |  | 1,178   |  |   |         |   |   | 30,938  |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total current liabilities                 |  |          | 436,425 |                      |   | 100,000                 |   |                                  | 35,033  |             |  | 246,400 |  |   | (100,000 | ) |   | 717,858 |  
|Intercompany payable                      |  |          |        |                      |   |                        |   |                                  | 238,031 |             |  |        |  |   | (238,031 | ) |   |        |  
|Deferred income taxes                     |  |          |        |                      |   |                        |   |                                  | 2,720   |             |  |        |  |   |         |   |   | 2,720   |  
|Other liabilities                         |  |          | 14,603  |                      |   |                        |   |                                  | 2,459   |             |  |        |  |   |         |   |   | 17,062  |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total liabilities                         |  |          | 451,028 |                      |   | 100,000                 |   |                                  | 278,243 |             |  | 246,400 |  |   | (338,031 | ) |   | 737,640 |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Partners Capital                         |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Partners capital                         |  |          | (17,695 | )                    |   | (39,535                 | ) |                                  | 137,108 |             |  | 51,040  |  |   | (148,613 | ) |   | (17,695 | )
|Accumulated other comprehensive loss      |  |          | (7,155  | )                    |   |                        |   |                                  |        |             |  |        |  |   |         |   |   | (7,155  | )
|Non controlling interest in Joint Venture |  |          |        |                      |   |                        |   |                                  |        |             |  | 94,297  |  |   |         |   |   | 94,297  |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total partners capital                   |  |          | (24,850 | )                    |   | (39,535                 | ) |                                  | 137,108 |             |  | 145,337 |  |   | (148,613 | ) |   | 69,447  |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total liabilities and partners capital   |  | $        | 426,178 |                      | $ | 60,465                  |   | $                                | 415,351 |             |  | 391,737 |  | $ | (486,644 | ) | $ | 807,087 |  
|                                          |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  

|   |                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Both the Parent and the
 Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been
 presented as an obligation of both entities in the above consolidating
 balance sheet. In addition, the
 related deferred financing costs are presented as an asset of both entities.
|   |                                                                                                                                                                                                                                                                                                                           
|** | Consists of the Joint Venture
 and the Partnerships wholly-owned subsidiary that owns its investment in the
 Joint Venture.                                                                                                                                                                                              

20

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Balance Sheet
As of December 31, 2008
(in thousands)

|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|-------------------------------------------------- |  | -------- | ------- | -------------------- | - | ----------------------- | - | -------------------------------- | ------- | ----------- |  | ------- |  | - | -------- | - | - | ------- | -
|                                                   |  | Parent * |         | Subsidiary
 Issuer * |   | Guarantor
 Subsidiaries |   | Non-
 Guarantor 
 Subsidiaries** |         | Adjustments |  | Total   | 
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         | 
|Assets                                             |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Current assets                                     |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Cash and equivalents                               |  | $        |        |                      | $ |                        |   | $                                | 20,583  |             |  | 16      |  | $ |         |   | $ | 20,599  |  
|Current portion of restricted cash and equivalents |  |          |        |                      |   |                        |   |                                  | 7,566   |             |  |        |  |   |         |   |   | 7,566   |  
|Accounts receivable, net                           |  |          |        |                      |   |                        |   |                                  | 4,905   |             |  |        |  |   |         |   |   | 4,905   |  
|Prepaid expenses and other current assets          |  |          |        |                      |   |                        |   |                                  | 18,883  |             |  | 194     |  |   |         |   |   | 19,077  |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total current assets                               |  |          |        |                      |   |                        |   |                                  | 51,937  |             |  | 210     |  |   |         |   |   | 52,147  |  
|Investment in subsidiaries, net                    |  |          | 186,797 |                      |   |                        |   |                                  |        |             |  |        |  |   | (186,797 | ) |   |        |  
|Intercompany receivable                            |  |          | 247,780 |                      |   | 63,715                  |   |                                  |        |             |  |        |  |   | (311,495 | ) |   |        |  
|Vessels and equipment, net                         |  |          |        |                      |   |                        |   |                                  | 376,326 |             |  | 327,869 |  |   |         |   |   | 704,195 |  
|Deferred financing costs, net                      |  |          | 2,253   |                      |   | 909                     |   |                                  |        |             |  |        |  |   | (909     | ) |   | 2,253   |  
|Other assets                                       |  |          |        |                      |   |                        |   |                                  | 1,065   |             |  | 775     |  |   |         |   |   | 1,840   |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total assets                                       |  | $        | 436,830 |                      | $ | 64,624                  |   | $                                | 429,329 |             |  | 328,854 |  | $ | (499,201 | ) | $ | 760,435 |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Liabilities and Partners Capital                  |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Current liabilities                                |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Current portion of long-term debt                  |  | $        | 433,574 |                      | $ | 100,000                 |   | $                                |        |             |  | 176,721 |  | $ | (100,000 | ) | $ | 610,295 |  
|Accounts payable                                   |  |          |        |                      |   |                        |   |                                  | 7,424   |             |  |        |  |   |         |   |   | 7,424   |  
|Due to affiliates                                  |  |          |        |                      |   |                        |   |                                  | 3,659   |             |  | 464     |  |   |         |   |   | 4,123   |  
|Deferred revenue                                   |  |          |        |                      |   |                        |   |                                  | 6,165   |             |  |        |  |   |         |   |   | 6,165   |  
|Accrued expenses and other liabilities             |  |          |        |                      |   |                        |   |                                  | 23,419  |             |  | 6,774   |  |   |         |   |   | 30,193  |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total current liabilities                          |  |          | 433,574 |                      |   | 100,000                 |   |                                  | 40,667  |             |  | 183,959 |  |   | (100,000 | ) |   | 658,200 |  
|Intercompany payable                               |  |          |        |                      |   |                        |   |                                  | 247,780 |             |  |        |  |   | (247,780 | ) |   |        |  
|Deferred income taxes                              |  |          |        |                      |   |                        |   |                                  | 2,720   |             |  |        |  |   |         |   |   | 2,720   |  
|Other liabilities                                  |  |          | 15,563  |                      |   |                        |   |                                  | 2,406   |             |  |        |  |   |         |   |   | 17,969  |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total liabilities                                  |  |          | 449,137 |                      |   | 100,000                 |   |                                  | 293,573 |             |  | 183,959 |  |   | (347,780 | ) |   | 678,889 |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Partners Capital                                  |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Partners capital                                  |  |          | (4,014  | )                    |   | (35,376                 | ) |                                  | 135,757 |             |  | 51,040  |  |   | (151,421 | ) |   | (4,014  | )
|Accumulated other comprehensive loss               |  |          | (8,294  | )                    |   |                        |   |                                  |        |             |  |        |  |   |         |   |   | (8,294  | )
|Noncontrolling interest in Joint Venture           |  |          |        |                      |   |                        |   |                                  |        |             |  | 93,854  |  |   |         |   |   | 93,854  |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total partners capital                            |  |          | (12,307 | )                    |   | (35,376                 | ) |                                  | 135,757 |             |  | 144,894 |  |   | (151,421 | ) |   | 81,546  |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  
|Total liabilities and partners capital            |  | $        | 436,830 |                      | $ | 64,624                  |   | $                                | 429,329 |             |  | 328,854 |  | $ | (499,201 | ) | $ | 760,435 |  
|                                                   |  |          |         |                      |   |                         |   |                                  |         |             |  |         |  |   |          |   |   |         |  

|   |                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Both the Parent and the
 Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes.
 Accordingly, such indebtedness has been presented as an obligation of both
 entities in the above consolidating balance sheet. In addition, the related
 deferred financing costs are presented as an asset of both entities.
|   |                                                                                                                                                                                                                                                                                                                           
|** | Consists of the Joint
 Venture and the Partnerships wholly-owned subsidiary that owns its investment
 in the Joint Venture.                                                                                                                                                                                              

21

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Operations
Three Months Ended March 31, 2009
(in thousands)

|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|------------------------------------------------------------- |  | -------- | ------- | -------------------- | - | ----------------------- | - | -------------------------------- | ------ | ----------- | - | ----- | - | - | ------ | - | - | ------- | -
|                                                              |  | Parent * |         | Subsidiary
 Issuer * |   | Guarantor
 Subsidiaries |   | Non-
 Guarantor 
 Subsidiaries** |        | Adjustments |   | Total |  
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |  
|Revenues                                                      |  | $        |        |                      | $ |                        |   | $                                | 44,107 |             | $ | 3,822 |   | $ |       |   | $ | 47,929  |  
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|Operating expenses                                            |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|Vessel operating expenses                                     |  |          |        |                      |   |                        |   |                                  | 14,384 |             |   | 1,788 |   |   |       |   |   | 16,172  |  
|Voyage expenses                                               |  |          |        |                      |   |                        |   |                                  | 15,825 |             |   | 20    |   |   |       |   |   | 15,845  |  
|General and administrative expenses                           |  |          |        |                      |   |                        |   |                                  | 5,738  |             |   | 246   |   |   |       |   |   | 5,984   |  
|Depreciation and amortization                                 |  |          |        |                      |   |                        |   |                                  | 6,780  |             |   | 1,211 |   |   |       |   |   | 7,991   |  
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|Total operating expenses, net                                 |  |          |        |                      |   |                        |   |                                  | 42,727 |             |   | 3,265 |   |   |       |   |   | 45,992  |  
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|Operating income                                              |  |          |        |                      |   |                        |   |                                  | 1,380  |             |   | 557   |   |   |       |   |   | 1,937   |  
|Interest expense                                              |  |          | 15,993  |                      |   | 4,159                   |   |                                  |       |             |   | 310   |   |   | (4,159 | ) |   | 16,303  |  
|Interest income                                               |  |          |        |                      |   |                        |   |                                  | (25    | )           |   | (7    | ) |   |       |   |   | (32     | )
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|Net gain on derivative financial instruments                  |  |          | (961    | )                    |   |                        |   |                                  |       |             |   | (189  | ) |   |       |   |   | (1,150  | )
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|(Loss) income before income taxes and noncontrolling interest |  |          | (15,032 | )                    |   | (4,159                  | ) |                                  | 1,405  |             |   | 443   |   |   | 4,159  |   |   | (13,184 | )
|Provision for income taxes                                    |  |          |        |                      |   |                        |   |                                  | 54     |             |   |      |   |   |       |   |   | 54      |  
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|(Loss) income before noncontrolling interest                  |  |          | (15,032 | )                    |   | (4,159                  | ) |                                  | 1,351  |             |   | 443   |   |   | 4,159  |   |   | (13,238 | )
|Equity in earnings of unconsolidated subsidiaries             |  |          | 1,351   |                      |   |                        |   |                                  |       |             |   |      |   |   | (1,351 | ) |   |        |  
|Noncontrolling interest in Joint Venture                      |  |          |        |                      |   |                        |   |                                  |       |             |   | 443   |   |   |       |   |   | 443     |  
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  
|Net (loss) income                                             |  | $        | (13,681 | )                    | $ | (4,159                  | ) | $                                | 1,351  |             | $ |      |   | $ | 2,808  |   | $ | (13,681 | )
|                                                              |  |          |         |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |         |  

|   |                                                                                                                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Both the Parent and the
 Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes. Accordingly, such indebtedness has been
 presented as an obligation of both entities in the above consolidating
 balance sheet. In addition, the
 related deferred financing costs are presented as an asset of both entities.
|   |                                                                                                                                                                                                                                                                                                                           
|** | Consists of the Joint
 Venture and the Partnerships wholly-owned subsidiary that owns its
 investment in the Joint Venture.                                                                                                                                                                                              

22

---



U.S. Shipping Partners L.P. 
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Operations
Three Months Ended March 31, 2008
(in thousands)

|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|------------------------------------------------------------- |  | -------- | ------ | -------------------- | - | ----------------------- | - | -------------------------------- | ------ | ----------- | - | ----- | - | - | ------ | - | - | ------ | -
|                                                              |  | Parent * |        | Subsidiary
 Issuer * |   | Guarantor
 Subsidiaries |   | Non-
 Guarantor 
 Subsidiaries** |        | Adjustments |   | Total |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|Revenues                                                      |  | $        |       |                      | $ |                        |   | $                                | 51,504 |             | $ |      |   | $ |       |   | $ | 51,504 |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|Operating expenses                                            |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|Vessel operating expenses                                     |  |          |       |                      |   |                        |   |                                  | 17,021 |             |   |      |   |   |       |   |   | 17,021 |  
|Voyage expenses                                               |  |          |       |                      |   |                        |   |                                  | 13,679 |             |   |      |   |   |       |   |   | 13,679 |  
|General and administrative expenses                           |  |          | 37     |                      |   |                        |   |                                  | 3,519  |             |   | 438   |   |   |       |   |   | 3,994  |  
|Depreciation and amortization                                 |  |          |       |                      |   |                        |   |                                  | 10,504 |             |   |      |   |   |       |   |   | 10,504 |  
|Other expense                                                 |  |          |       |                      |   |                        |   |                                  | 5,787  |             |   |      |   |   |       |   |   | 5,787  |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|Total operating expenses, net                                 |  |          | 37     |                      |   |                        |   |                                  | 50,510 |             |   | 438   |   |   |       |   |   | 50,985 |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|Operating (loss) income                                       |  |          | (37    | )                    |   |                        |   |                                  | 994    |             |   | (438  | ) |   |       |   |   | 519    |  
|Interest expense                                              |  |          | 7,891  |                      |   | 3,407                   |   |                                  |       |             |   |      |   |   | (3,407 | ) |   | 7,891  |  
|Interest income                                               |  |          |       |                      |   |                        |   |                                  | (1,040 | )           |   |      |   |   |       |   |   | (1,040 | )
|Net (gains) losses on derivative financial instruments        |  |          | (706   | )                    |   |                        |   |                                  |       |             |   | 264   |   |   |       |   |   | (442   | )
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|(Loss) income before income taxes and noncontrolling interest |  |          | (7,222 | )                    |   | (3,407                  | ) |                                  | 2,034  |             |   | (702  | ) |   | 3,407  |   |   | (5,890 | )
|Provision for income taxes                                    |  |          |       |                      |   |                        |   |                                  | 292    |             |   |      |   |   |       |   |   | 292    |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|(Loss) income before noncontrolling interest                  |  |          | (7,222 | )                    |   | (3,407                  | ) |                                  | 1,742  |             |   | (702  | ) |   | 3,407  |   |   | (6,182 | )
|Equity in earnings of unconsolidated subsidiaries             |  |          | 1,444  |                      |   |                        |   |                                  |       |             |   |      |   |   | (1,444 | ) |   |       |  
|Noncontrolling interest in Joint Venture losses               |  |          |       |                      |   |                        |   |                                  |       |             |   | 404   |   |   |       |   |   | 404    |  
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  
|Net (loss) income                                             |  | $        | (5,778 | )                    | $ | (3,407                  | ) | $                                | 1,742  |             | $ | (298  | ) | $ | 1,963  |   | $ | (5,778 | )
|                                                              |  |          |        |                      |   |                         |   |                                  |        |             |   |       |   |   |        |   |   |        |  

|   |                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Both the Parent and the
 Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the interest expense in
 respect of the Notes has been presented as an expense of both entities in the
 above consolidating statement of operations.
|   |                                                                                                                                                                                                                                                  
|** | Consists of
 the Joint Venture and the Partnerships wholly-owned subsidiary that owns its
 investment in the Joint Venture.                                                                                                                     

23

---



U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.Unaudited Consolidating Statement of Cash
Flows
For the Three Months Ended March 31, 2009
(in thousands)

|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|------------------------------------------------------------------------------------------------------ |  | --------------------- | ------- | -------- | - | -------------------- | - | ----------------------- | ------ | ------------------------------- | - | ----------- | - | ----- | ------- | - | - | ------ | - | - | ------- | -
|                                                                                                       |  | Year Ended
 31-Mar-09 |         | Parent * |   | Subsidiary
 Issuer * |   | Guarantor
 Subsidiaries |        | Non-
 Guarantor
 Subsidiaries** |   | Adjustments |   | Total |        
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |        
|Cash flows from operating activities                                                                   |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Net (loss) income                                                                                      |  | $                     | (13,681 | )        | $ | (13,681              | ) | $                       | (4,159 | )                               | $ | 1,351       |   | $     |        |   | $ | 2,808  |   | $ | (13,681 | )
|Adjustments to reconcile net (loss) income to net cash (used in)
 provided by operating activities     |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Depreciation of vessels and equipment, and amortization of drydock
 costs and deferred financing costs |  |                       | 10,244  |          |   | 2,253                |   |                         | 909    |                                 |   | 7,991       |   |       |        |   |   | (909   | ) |   | 10,244  |  
|Interest added to debt outstanding                                                                     |  |                       | 2,851   |          |   |                      |   |                         |       |                                 |   | 2,851       |   |       |        |   |   |       |   |   | 2,851   |  
|Amortization of deferred loss from derivatives in AOCI                                                 |  |                       | 1,380   |          |   |                     |   |                         |        |                                 |   | 1,380       |   |       |         |   |   |        |   |   | 1,380   |  
|Benefit for accounts receivable                                                                        |  |                       | (51     | )        |   |                      |   |                         |       |                                 |   | (51         | ) |       |        |   |   |       |   |   | (51     | )
|Noncontrolling interest in Joint Venture                                                               |  |                       | 443     |          |   |                     |   |                         |       |                                 |   |            |   |       | 443     |   |   |       |   |   | 443     |  
|Net gain on derivative financial instruments                                                           |  |                       | (1,150  | )        |   | (961                 | ) |                         |       |                                 |   |            |   |       | (189    | ) |   |       |   |   | (1,150  | )
|Capitalized drydock costs                                                                              |  |                       | (2,811  | )        |   |                     |   |                         |       |                                 |   | (2,811      | ) |       |        |   |   |       |   |   | (2,811  | )
|Equity in earnings of unconsolidated subsidiaries                                                      |  |                       |        |          |   | (1,351               | ) |                         |       |                                 |   |            |   |       |        |   |   | 1,351  |   |   |        |  
|Changes in assets and liabilities:                                                                     |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Accounts receivable                                                                                    |  |                       | (1,527  | )        |   |                     |   |                         |       |                                 |   | (1,527      | ) |       |        |   |   |       |   |   | (1,527  | )
|Prepaid expenses and other current assets                                                              |  |                       | 7,601   |          |   |                     |   |                         |       |                                 |   | 7,601       |   |       |        |   |   |       |   |   | 7,601   |  
|Other assets                                                                                           |  |                       |        |          |   |                     |   |                         |       |                                 |   | 74          |   |       | (74     | ) |   |       |   |   |        |  
|Accounts payable                                                                                       |  |                       | (1,901  | )        |   |                     |   |                         |       |                                 |   | (1,901      | ) |       |        |   |   |       |   |   | (1,901  | )
|Deferred revenue                                                                                       |  |                       | (6,165  | )        |   |                     |   |                         |       |                                 |   | (6,165      | ) |       |        |   |   |       |   |   | (6,165  | )
|Accrued expenses and other liabilities                                                                 |  |                       | 6,063   |          |   |                     |   |                         |       |                                 |   | 4,888       |   |       | 1,175   |   |   |       |   |   | 6,063   |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Net cash (used in) provided by operating activities                                                    |  |                       | 1,296   |          |   | (13,740              | ) |                         | (3,250 | )                               |   | 13,681      |   |       | 1,355   |   |   | 3,250  |   |   | 1,296   |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Cash flows from investing activities                                                                   |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Change in restricted cash and equivalents, net                                                         |  |                       | 6,856   |          |   |                     |   |                         |       |                                 |   | 6,856       |   |       |        |   |   |       |   |   | 6,856   |  
|Construction of vessels and equipment                                                                  |  |                       | (73,765 | )        |   |                     |   |                         |       |                                 |   | (6,212      | ) |       | (67,553 | ) |   |       |   |   | (73,765 | )
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Net cash provided by (used in) investing activities                                                    |  |                       | (66,909 | )        |   |                     |   |                         |       |                                 |   | 644         |   |       | (67,553 | ) |   |       |   |   | (66,909 | )
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Cash flows from financing activities                                                                   |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Proceeds from Joint Venture revolver borrowings                                                        |  |                       | 68,383  |          |   |                     |   |                         |       |                                 |   |            |   |       | 68,383  |   |   |       |   |   | 68,383  |  
|Intercompany receivable (payable)                                                                      |  |                       |        |          |   | 13,740               |   |                         | 3,250  |                                 |   | (13,732     | ) |       | (8      | ) |   | (3,250 | ) |   |        |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Net cash provided by (used in) financing activities                                                    |  | $                     | 68,383  |          | $ | 13,740               |   | $                       | 3,250  |                                 | $ | (13,732     | ) | $     | 68,375  |   | $ | (3,250 | ) | $ | 68,383  |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Net increase in cash and cash equivalents                                                              |  |                       | 2,770   |          |   |                     |   |                         |       |                                 |   | 593         |   |       | 2,177   |   |   |       |   |   | 2,770   |  
|Cash and cash equivalents at beginning of period                                                       |  |                       | 20,599  |          |   |                     |   |                         |       |                                 |   | 20,583      |   |       | 16      |   |   |       |   |   | 20,599  |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  
|Cash and cash equivalents at end of period                                                             |  | $                     | 23,369  |          | $ |                     |   | $                       |       |                                 | $ | 21,176      |   | $     | 2,193   |   | $ |       |   | $ | 23,369  |  
|                                                                                                       |  |                       |         |          |   |                      |   |                         |        |                                 |   |             |   |       |         |   |   |        |   |   |         |  

|   |                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Both the Parent and the
 Subsidiary Issuer are co-issuers of $100,000 in Second Lien Notes.
 Accordingly, such indebtedness has been presented as an obligation of both
 entities in the above consolidating balance sheet. In addition, the remaining
 net related deferred financing costs are presented as an asset of both
 entities.
|   |                                                                                                                                                                                                                                                                                                                                          
|** | Consists of the Joint
 Venture and the Partnerships wholly-owned subsidiary that owns its
 investment in the Joint Venture.                                                                                                                                                                                                             

24

---



U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

U.S. Shipping Partners L.P.Unaudited Consolidating Statement of Cash
Flows
For the Three Months Ended March 31, 2008
(in thousands)

|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|------------------------------------------------------------------------------------------------------ |  | -------- | ------ | -------------------- | - | ----------------------- | - | ----------------------------- | ------- | ----------- | - | ------- | - | - | ------- | - | - | ------- | -
|                                                                                                       |  | Parent * |        | Subsidiary
 Issuer * |   | Guarantor
 Subsidiaries |   | Non-Guarantor
 Subsidiaries** |         | Adjustments |   | Total   |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |  
|                                                                                                      
|Cash flows from operating activities                                                                   |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Net (loss) income                                                                                      |  | $        | (5,778 | )                    | $ | (3,407                  | ) | $                             | 1,742   |             | $ | (298    | ) | $ | 1,963   |   | $ | (5,778  | )
|Adjustments to reconcile net (loss) income to net cash (used in)
 provided by operating activities     |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Depreciation of vessels and equipment, and amortization of drydock
 costs and deferred financing costs |  |          | 464    |                      |   | 157                     |   |                               | 10,504  |             |   |        |   |   | (157    | ) |   | 10,968  |  
|Impairment of construction-in-progress                                                                 |  |          |       |                      |   |                        |   |                               | 5,720   |             |   |        |   |   |        |   |   | 5,720   |  
|Loss on sale of surplus equipment                                                                      |  |          |       |                      |   |                        |   |                               | 67      |             |   |        |   |   |        |   |   | 67      |  
|Equity compensation                                                                                    |  |          | 37     |                      |   |                        |   |                               |        |             |   |        |   |   |        |   |   | 37      |  
|(Benefit) for accounts receivable                                                                      |  |          |       |                      |   |                        |   |                               | (90     | )           |   |        |   |   |        |   |   | (90     | )
|Noncontrolling interest in Joint Venture loss                                                          |  |          |       |                      |   |                        |   |                               |        |             |   | (404    | ) |   |        |   |   | (404    | )
|Gain (loss) on derivative financial instruments                                                        |  |          | (706   | )                    |   |                        |   |                               |        |             |   | 264     |   |   |        |   |   | (442    | )
|Deferred income taxes                                                                                  |  |          |       |                      |   |                        |   |                               | 192     |             |   |        |   |   |        |   |   | 192     |  
|Capitalized drydock costs                                                                              |  |          |       |                      |   |                        |   |                               | (1,965  | )           |   |        |   |   |        |   |   | (1,965  | )
|Equity in earnings of unconsolidated subsidiaries                                                      |  |          | (1,444 | )                    |   |                        |   |                               |        |             |   |        |   |   | 1,444   |   |   |        |  
|Changes in assets and liabilities:                                                                     |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Accounts receivable                                                                                    |  |          |       |                      |   |                        |   |                               | 1,162   |             |   |        |   |   |        |   |   | 1,162   |  
|Prepaid expenses and other current assets                                                              |  |          |       |                      |   |                        |   |                               | 1,178   |             |   |        |   |   |        |   |   | 1,178   |  
|Other assets                                                                                           |  |          |       |                      |   |                        |   |                               | (1      | )           |   |        |   |   |        |   |   | (1      | )
|Accounts payable                                                                                       |  |          |       |                      |   |                        |   |                               | (1,182  | )           |   |        |   |   |        |   |   | (1,182  | )
|Deferred revenue                                                                                       |  |          |       |                      |   |                        |   |                               | (1,193  | )           |   |        |   |   |        |   |   | (1,193  | )
|Accrued expenses and other liabilities                                                                 |  |          |       |                      |   |                        |   |                               | (4,897  | )           |   | 135     |   |   |        |   |   | (4,762  | )
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Net cash (used in) provided by operating activities                                                    |  |          | (7,427 | )                    |   | (3,250                  | ) |                               | 11,237  |             |   | (303    | ) |   | 3,250   |   |   | 3,507   |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Cash flows from investing activities                                                                   |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Change in restricted cash and equivalents, net                                                         |  |          |       |                      |   |                        |   |                               | 39,000  |             |   |        |   |   |        |   |   | 39,000  |  
|Sale of surplus equipment                                                                              |  |          |       |                      |   |                        |   |                               | 138     |             |   |        |   |   |        |   |   | 138     |  
|Construction of vessels and equipment                                                                  |  |          |       |                      |   |                        |   |                               | (22,693 | )           |   | (59,490 | ) |   |        |   |   | (82,183 | )
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Net cash provided by (used in) investing activities                                                    |  |          |       |                      |   |                        |   |                               | 16,445  |             |   | (59,490 | ) |   |        |   |   | (43,045 | )
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Cash flows from financing activities                                                                   |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Proceeds from Joint Venture revolver borrowings                                                        |  |          |       |                      |   |                        |   |                               |        |             |   | 29,895  |   |   |        |   |   | 29,895  |  
|Contribution by noncontrolling interest equity investors in Joint
 Venture                             |  |          |       |                      |   |                        |   |                               |        |             |   | 29,895  |   |   | (11,959 | ) |   | 17,936  |  
|Repayment of debt                                                                                      |  |          | (775   | )                    |   |                        |   |                               |        |             |   |        |   |   |        |   |   | (775    | )
|Intercompany receivable / payable                                                                      |  |          | 13,302 |                      |   | 3,250                   |   |                               | (25,261 | )           |   |        |   |   | 8,709   |   |   |        |  
|Distributions to partners                                                                              |  |          | (5,100 | )                    |   |                        |   |                               |        |             |   |        |   |   |        |   |   | (5,100  | )
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Net cash provided by (used in) financing activities                                                    |  | $        | 7,427  |                      | $ | 3,250                   |   | $                             | (25,261 | )           | $ | 59,790  |   | $ | (3,250  | ) | $ | 41,956  |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                   |  |          |       |                      |   |                        |   |                               | 2,421   |             |   | (3      | ) |   |        |   |   | 2,418   |  
|Cash and cash equivalents at beginning of period                                                       |  |          |       |                      |   |                        |   |                               | 21,596  |             |   | 8       |   |   |        |   |   | 21,604  |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  
|Cash and cash equivalents at end of period                                                             |  | $        |       |                      | $ |                        |   | $                             | 24,017  |             | $ | 5       |   | $ |        |   | $ | 24,022  |  
|                                                                                                       |  |          |        |                      |   |                         |   |                               |         |             |   |         |   |   |         |   |   |         |  

|                                                                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* Both the Parent and the
 Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the cash
 flows related to the Notes have been presented as cash flows of both entities
 in the above consolidating statement of cash flows.
|                                                                                                                                                                                                                                           
|** Consists of the Joint
 Venture and the Partnerships wholly-owned subsidiary that owns its
 investment in the Joint Venture.                                                                                                            

25

---



U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

|    |                  
|--- | -----------------
|16. | Subsequent Events

Settlement
of Litigation with Joint Venture Investors

On
July 10, 2009, the Partnership and its wholly-owned subsidiaries USS Product
Carriers LLC (Product Carriers), Product Manager and USS PC Holding Corp.
(collectively the USS Entities) entered into a settlement agreement with the
Joint Venture Investors and the Joint Venture Lenders (such investors and
lenders collectively the Blackstone/Cerberus Entities), to settle litigation
relating to control of the operations of the Joint Venture. Under the terms of
the settlement, which was approved by the Bankruptcy Court on July 17, 2009 and
effective on July 28, 2009 (the Effective Date):

| |       |                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | on the Effective Date
 Product Carriers transferred its Class B member interest to the Joint Venture
 Investors for one dollar and no longer has an interest in, or the right to
 act as managing member of, the Joint Venture;                                 
| |       |                                                                                                                                                                                                                                                                 
| | (ii)  | in consideration of the
 termination of Product Managers right to manage the operations of the Joint
 Venture:                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                 
| |       | (a)                                                                                                                                                                                                                                                              | the
 Blackstone/Cerberus Entities will pay Product Manager an aggregate of
 $14,000, of which $9,000 was paid on the Effective Date, $2,300 will be paid
 40 days after the orderly transition of management of the vessels from
 Product Manager to a replacement manager appointed by the Blackstone/Cerberus
 Entities, and $2,700 will be paid in equal monthly installments through
 December 2010;
| |       |                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                         
| |       | (b)                                                                                                                                                                                                                                                              | the Joint Venture will pay
 to Product Manager 50% of the first $1,000 of any cost savings received by
 the Joint Venture in respect of the three vessels still under construction if
 those vessels are delivered under the contracted cost; and                                                                                                                                                       
| |       |                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                         
| |       | (c)                                                                                                                                                                                                                                                              | the Joint Venture will pay
 to Product Manager 50% of the first $500 of any cost savings received by the
 Joint Venture in respect of the last vessel still under construction if that
 vessel is delivered under the contracted cost, provided that this amount will
 only be paid to the extent the cost savings were not used to pay the amount
 due under clause (ii)(b) above;                     
| |       |                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                         
| | (iii) | the USS Entities have a
 right of first offer to purchase the Joint Ventures vessels to the extent
 the Joint Venture determines to offer all or any portion of them for sale in
 the future, although the Joint Venture has no obligation to accept any offer;
| |       |                                                                                                                                                                                                                                                                 
| | (iv)  | the contracts between the
 USS Entities or their affiliates and the Joint Venture are being terminated;                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                         
| | (v)   | the USS Entities and the
 Blackstone/Cerberus Entities have exchanged broad, global releases; and                                                                                                                                                               
| |       |                                                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                         
| | (vi)  | on the Effective Date, all
 the litigation between the USS Entities and the Blackstone/Cerberus Entities
 was dismissed with prejudice.                                                                                                                         

Refer
to Note 15  Supplemental Guarantor Information for information regarding the
financial position, results of operations and cash flows of the Partnerships
subsidiaries that are not guarantors of its Second Lien Notes which, as of March
31, 2009 and for the three months then ended, consisted of the Joint Venture
and the Partnerships wholly-owned subsidiary that owns its investment in the
Joint Venture.

Edison,
New Jersey Office Lease

On
July 23, 2009, the Partnership entered into a lease agreement with Thornall
Associates, L.P. to extend the rental of the Edison, New Jersey office space
from May 31, 2009 until October 31, 2014. The new lease stipulates an annual
fixed rent of $350 payable monthly in advance. The lease also allows for an
abatement of $146 which is to be applied against the monthly fixed rent
payments due for the months of June 2009 through October 2009.

Rand
Logistics Offer to Acquire Substantially all Assets of the Partnership

On
July 30, 2009, Rand Logistics, Inc. (Rand) submitted a non-binding proposal
via letter to the board of directors of USSGP pursuant to which Rand proposed,
as an alternative to the Partnerships proposed plan of reorganization dated
July 10, 2009, a transaction in which Rand would acquire the majority of the
assets, and assume certain liabilities, of the Partnership and its subsidiaries
for a combination of cash, notes and warrants (the Rand Proposal).

26

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U.S. Shipping Partners L.P.
Notes to Unaudited Condensed Consolidated Financial Statements
(dollars in thousands; except per unit data)

On
August 4, 2009, after consultation with its financial and legal advisors and
the Steering Committee of the secured lenders, the Partnership advised Rand
that the board of directors had determined that the Partnerships proposed plan
of reorganization dated July 10, 2009 will deliver a higher value to all the
Partnerships stakeholders than the non-binding alternative plan of
reorganization proposed by Rand. The Partnership also advised Rand that as a
result, the board of directors did not believe it is appropriate to negotiate
an amendment to the Disclosure Statement to permit the Partnerships creditors
the option to consider the Rand Proposal as an alternative to the Partnerships
July 10, 2009 proposed plan of reorganization.

On
August 6, 2009, Rand responded to the Partnerships August 4, 2009 letter,
disagreeing with the Boards conclusion and making slight changes to the Rand
Proposal.

On
August 11, 2009, after consideration of Rands August 6, 2009 letter and
consultation with its financial and legal advisors, the Partnership advised
Rand that the board of directors had determined that the Partnerships proposed
plan of reorganization dated August 6, 2009 (the Plan) will deliver a higher
value to all the Partnerships stakeholders than the non-binding, highly speculative
alternative plan of reorganization proposed by Rand. The Partnership also
advised Rand that as a result the board of directors did not believe it is in
the best interests of all the Partnerships stakeholders to negotiate an
amendment to the Disclosure Statement to permit the Partnerships creditors the
option to consider Rands proposal as an alternative to the Plan. The
Partnership also advised Rand that absent an offer at a value that the Board
of Directors determines is at least reasonably equivalent to the value provided
by the Plan and that has been approved by the Rand Board of Directors, is fully
financed with no conditions to the financing and contains no conditions to
closing other than approval of the transaction by the Bankruptcy Court, the Board
does not believe it to be in the best interests of all the Partnerships
stakeholders to disrupt its current process and introduce uncertainty by
negotiating with Rand regarding a non-binding, highly speculative transaction.

27

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ITEM 2. Managements Discussion And Analysis
Of Financial Condition And Results Of Operations

Overview

The
following is a discussion of the historical consolidated financial condition
and results of operations of U.S. Shipping Partners L.P, and should be read in
conjunction with our historical consolidated financial statements and notes
thereto included elsewhere in this report. Refer to Item 7
Managements Discussion And Analysis Of Financial Condition And Results Of
Operations in the Partnerships
Annual Report on Form 10-K for the year ended December 31, 2008 for additional
information that may not be contained in this discussion.

Proceedings
Under Chapter 11 of the Bankruptcy Code

On
April 29, 2009 (the Commencement Date), we, together with all of our
wholly-owned subsidiaries, US Shipping General Partner LLC, our general partner
(USSGP), and USS Vessel Management LLC, a wholly-owned subsidiary of USSGP,
filed voluntary petitions for reorganization relief under Chapter 11 of Title
11 of the United States Bankruptcy Code (the Bankruptcy Code) in the United
States Bankruptcy Court for the Southern District of New York (the Bankruptcy
Court). The Chapter 11 cases are being jointly administered under the caption
In re U.S. Shipping Partners L.P. et al., Case No. 09-12711 (RDD) (the
Bankruptcy Cases). We are continuing to manage our properties and operate our
businesses as debtors-in-possession under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the Bankruptcy Code
and the orders of the Bankruptcy Court. See Part IIItem 5. Other Information
for additional information regarding our bankruptcy and our proposed plan of
reorganization.

We
have incurred and will continue to incur significant costs associated with the
reorganization. The amount of these costs, which are being expensed as
incurred, are expected to significantly affect our results of operations.

As
of the Commencement Date, we had approximately $15.5 million in unrestricted
cash and cash equivalents. Our ability to continue as a going concern is
dependent upon, among other things, (i) our ability to comply with the terms
and conditions of the cash collateral order entered by the Bankruptcy Court in
connection with the Bankruptcy Cases; (ii) our ability to generate cash from
operations; (iii) our ability to obtain confirmation of and to consummate a
plan of reorganization under the Bankruptcy Code; and (iv) the cost, duration
and outcome of the reorganization process. Uncertainty as to the outcome of
these factors raises substantial doubt about our ability to continue as a going
concern. We are currently evaluating various courses of action to address the
operational and liquidity issues the Partnership is facing, and formulating
plans for improving operations. There can be no assurance that any of these
efforts will be successful. The accompanying unaudited consolidated financial
statements do not include any adjustments that might result should the
Partnership be unable to continue as a going concern. Consistent with generally
accepted accounting principles preparing the accompanying unaudited
consolidated financial statements on a going concern basis contemplates the
realization of assets and the discharge of liabilities in the normal course of
business for the foreseeable future.

As
a result of the Bankruptcy Filing, realization of assets and liquidation of
liabilities are subject to uncertainty. While operating as a
debtor-in-possession under the protection of Chapter 11, and subject to
Bankruptcy Court approval or otherwise as permitted in the normal course of
business, we may sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the consolidated financial
statements. Further, a plan of reorganization could materially change the
amounts and classifications reported in our consolidated financial statements.
Our historical consolidated financial statements do not give effect to any
adjustments to the carrying value of assets or amounts of liabilities that
might be necessary as a consequence of confirmation of a plan of
reorganization.

The
potential adverse publicity associated with the Bankruptcy Filing and the
resulting uncertainty regarding our future prospects may hinder our ongoing
business activities and our ability to operate, fund and execute our business
plan by impairing relations with existing and potential customers; negatively
impacting our ability to attract, retain and compensate key executives and
employees and to retain employees generally; limiting our ability to obtain
trade credit; and impairing present and future relationships with vendors and
service providers.

American
Institute of Certified Public Accountants Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy Code
(SOP 90-7), which is applicable to companies in Chapter 11, generally does not
change the manner in which financial statements are prepared. However, it does
require that the financial statements for periods subsequent to the filing of
the Chapter 11 petition distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business.
Revenues, expenses (including professional fees), realized gains and losses,
and provisions for losses that can be directly associated with the
reorganization and restructuring of the business must be reported separately as
reorganization items in the consolidated statements of operations beginning in
the quarter ending June 30, 2009. The consolidated balance sheet must
distinguish pre-petition liabilities subject to compromise from both those
pre-petition liabilities that are not subject to compromise and from post-petition
liabilities. Liabilities that may be affected by the plan must be reported at
the amounts expected to be allowed, even if they may be settled for lesser
amounts. In addition, cash provided by reorganization items must be disclosed
separately in the condensed consolidated statement of cash flows. The
Partnership adopted SOP 90-7 effective in May 2009 and will segregate those
items as outlined above for all reporting periods subsequent to such date.

28

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Description of Business

We
are a leading provider of long-haul marine transportation services, principally
for refined petroleum, petrochemical and commodity chemical products, in the
U.S. domestic coastwise trade. Marine transportation is a vital link in the
distribution of refined petroleum, petrochemical and commodity chemical
products in the United States. During 2008 and continuing into the first
quarter of 2009, we at various times employed some of our ITBs to transport
grain overseas for humanitarian organizations to improve utilization of the ITB
fleet.

Our
existing fleet as of March 31, 2009 consists of eleven vessels: four integrated
tug barge units (ITBs), one product tanker (Houston);
three chemical parcel tankers (Parcel Tankers) and three articulated tug
barge units (ATBs), one of which entered service in July 2007, the second in
August 2008 and the third in November 2008. Our last ATB, which was under
construction at March 31, 2009, was delivered in July 2009 and placed in
service in August 2009. At March 31, 2009, we were also managing one tanker on
behalf of our Joint Venture.

Our
primary customers are major oil and chemical companies. 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.

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:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Voyage revenue. Voyage revenue includes revenue from
 time charters, contracts of affreightment, consecutive voyage charters and
 spot charters. Voyage revenue is impacted by changes in charter and
 utilization rates and by the mix of business among the types of contracts:
 time charters, which are contracts to charter a vessel for a fixed period of
 time, generally one year or more, at a set daily rate; contracts of
 affreightment, which are contracts to provide transportation services for
 products over a specific trade route, generally for one or more years, at a
 negotiated rate per ton; consecutive voyage charters, which are charters for
 a specified period of time at a negotiated rate per ton; and spot charters,
 which are charters for shorter intervals, usually a single round-trip, that
 are made on either a current market rate or lump sum contractual basis.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | Voyage expenses. Voyage expenses include items such as
 fuel, port charges, pilot fees, tank cleaning costs, canal tolls, brokerage
 commissions, discharge fees, inland distribution fees and other costs which
 are unique to a particular voyage. These costs can vary significantly depending
 on the voyage trade route. Depending on the form of contract, either we or
 our customer is responsible for these expenses. If we pay voyage expenses,
 they are included in our results of operations when they are incurred.
 Typically, our freight rates are higher when we pay voyage expenses. A
 substantial portion of certain cost increases can be passed on to our
 customers.                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | Vessel operating expenses. We pay the vessel operating expenses
 regardless of whether we are operating under a time charter, contract of
 affreightment, consecutive voyage charter or spot charter. The most
 significant direct vessel operating expenses are crewing costs, vessel
 maintenance and repairs, and marine insurance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | · | Depreciation and amortization. We incur expenses related to the
 depreciation of the historical cost of our fleet and the amortization of
 expenditures for drydockings. The aggregate number of drydockings undertaken
 in a given period and the nature of the work performed determine the level of
 drydocking expenditures. Depreciation and amortization is determined as
 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Vessels are
 recorded at cost, including capitalized interest and transaction fees where
 appropriate, and depreciated to salvage value using the straight-line method
 as follows: 10 years for the Chemical Pioneer, the Charleston
 and the Houston;
 and 30 years for the ATB Freeport, the ATB Galvestonand the ATB
 Brownsville based on their respective estimated useful lives. Our
 ITBs are being depreciated to recoverable value based on their estimated
 useful lives. TheSea Ventureis recorded at its
 estimated scrapping value after recording an impairment charge at December
 31, 2008.

29

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | Office
 furniture, equipment and other are depreciated over the estimated useful life
 of three to ten 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. Leasehold improvements are capitalized and
 depreciated over the shorter of their useful life or the remaining term of
 the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | To date, our
 ITBs have been able to participate in the United States Coast Guard
 Underwater Inspection In Lieu of Drydock (UWILD) Program, which allows the
 ITBs to be drydocked once every five years, with a mid-period underwater
 survey in lieu of a second drydock. Our chemical vessels must be drydocked
 twice every five years. In addition, vessels may have to be drydocked in the event
 of accidents or other unforeseen damage. We capitalize expenditures incurred
 for drydocking and amortize these expenditures over the remaining depreciable
 lives for the ITBs and 30 months for the parcel tankers and theHouston. If our ITBs can no longer
 participate in the UWILD Program and we have to drydock such vessels twice
 every five years, we will amortize these expenditures over the remaining
 depreciable lives. We expect that our ITBs will be able to continue
 participation in the UWILD program.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   | o                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | The ATBs are
 subject to the same drydock requirements as the ITBs and currently qualify
 for participation in the UWILD program. We will capitalize expenditures
 incurred for drydocking the ATBs and amortize these expenditures over 60
 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | · | General and administrative expenses. General and administrative expenses
 consist of employment costs for shore side staff and cost of facilities, as
 well as legal, audit and other administrative costs and costs related to our
 review of strategic alternatives, negotiations with our lenders and
 bankruptcy planning.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Total vessel days. Total vessel days are equal to the
 number of calendar days in the period multiplied by the total number of
 vessels operating or in drydock during that period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Days worked. Days worked are equal to total vessel
 days less drydocking days and days off-hire.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Drydocking days. Drydocking days are days designated
 for the inspection and survey of vessels, and resulting maintenance work, as
 required by the U.S. Coast Guard and the American Bureau of Shipping to
 maintain the vessels qualification to work in the U.S. coastwise trade. Both
 domestic (U.S. Coast Guard) and international (International Maritime
 Organization) regulatory bodies require that our ITBs and ATBs be drydocked
 for major repair and maintenance at least twice every five years. To date,
 our ITBs have been able to participate in the UWILD Program, which allows the
 ITBs to be drydocked once every five years, with a mid-period underwater
 survey in lieu of a drydock while in domestic trade; however, under
 international maritime organization regulations, in order for it to continue
 to trade internationally (including grain voyages), our ITBs will have to
 undergo two drydockings in each five year period, rather than a drydocking
 and a UWILD. The ATBs also qualify for the UWILD program. Our parcel tankers
 and the Houstonmust be drydocked twice every five years. Drydocking days also
 include unscheduled instances where vessels may have to be drydocked in the
 event of accidents or other unforeseen damage.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Net utilization. Net utilization is a primary measure
 of operating performance in our business. Net utilization is a percentage
 equal to the total number of days worked by a vessel or group of vessels
 during a defined period, divided by total vessel days for that vessel or
 group of vessels. Net utilization is adversely impacted by drydocking,
 scheduled and unscheduled maintenance and idle time not paid for by the
 customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | · | Time charter equivalent. Time charter equivalent, another key
 measure of our operating performance, is equal to the net voyage revenue
 (voyage revenue less voyage expenses) earned by a vessel during a defined
 period, divided by the total number of actual days worked by that vessel
 during that period. Fluctuations in time charter equivalent result not only
 from changes in types of contracts and charter rates charged to our
 customers, but also from voyage expenses incurred as well as from external
 factors such as weather or other delays.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

30

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Results of Operations

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

|                                                                |  |                                      |         |      |   |        |  
|--------------------------------------------------------------- |  | ------------------------------------ | ------- | ---- | - | ------ | -
|                                                                |  | For the Three Months Ended March 31,
|                                                                |  | 2009                                 |         | 2008 |  
|                                                                |  |                                      |         |      |  
|                                                                |  |                                      |         |      |   |        |  
|Voyage revenue                                                  |  | $                                    | 47,929  |      | $ | 51,504 |  
|                                                                |  |                                      |         |      |   |        |  
|Vessel operating expenses                                       |  |                                      | 16,172  |      |   | 17,021 |  
|% of voyage revenue                                             |  |                                      | 33.7    | %    |   | 33.0   | %
|Voyage expenses                                                 |  |                                      | 15,845  |      |   | 13,679 |  
|% of voyage revenue                                             |  |                                      | 33.1    | %    |   | 26.6   | %
|General and administrative expenses                             |  |                                      | 5,984   |      |   | 3,994  |  
|% of voyage revenue                                             |  |                                      | 12.5    | %    |   | 7.8    | %
|Depreciation and amortization                                   |  |                                      | 7,991   |      |   | 10,504 |  
|Impairment charges                                              |  |                                      |        |      |   | 5,720  |  
|Other expense (income)                                          |  |                                      |        |      |   | 67     |  
|                                                                |  |                                      |         |      |   |        |  
|Total operating expenses, net                                   |  |                                      | 45,992  |      |   | 50,985 |  
|                                                                |  |                                      |         |      |   |        |  
|Operating income                                                |  |                                      | 1,937   |      |   | 519    |  
|% of voyage revenue                                             |  |                                      | 4.0     | %    |   | 1.0    | %
|Interest expense                                                |  |                                      | 16,303  |      |   | 7,891  |  
|Interest income                                                 |  |                                      | (32     | )    |   | (1,040 | )
|Net loss / (gain) on derivative financial
 instruments          |  |                                      | (1,150  | )    |   | (442   | )
|                                                                |  |                                      |         |      |   |        |  
|Loss before income taxes and noncontrolling
 interest           |  |                                      | (13,184 | )    |   | (5,890 | )
|Provision for income taxes                                      |  |                                      | 54      |      |   | 292    |  
|                                                                |  |                                      |         |      |   |        |  
|Net loss                                                        |  |                                      | (13,238 | )    |   | (6,182 | )
|Net (loss) gain attributable to
 noncontrolling interest        |  |                                      | 443     |      |   | (404   | )
|                                                                |  |                                      |         |      |   |        |  
|Net loss                                                        |  | $                                    | (13,681 | )    | $ | (5,778 | )
|                                                                |  |                                      |         |      |   |        |  
|                                                                |  |                                      |         |      |   |        |  
|Distributions declared per common unit in respect of the period |  | $                                    |        |      | $ | 0.45   |  
|                                                                |  |                                      |         |      |   |        |  
|Operating Data(1)                                               |  |                                      |         |      |   |        |  
|Partnership                                                     |  |                                      |         |      |   |        |  
|Number of vessels - owned                                       |  |                                      | 11      |      |   | 11     |  
|Total vessel days                                               |  |                                      | 990     |      |   | 1,001  |  
|Days worked                                                     |  |                                      | 773     |      |   | 966    |  
|Drydocking days                                                 |  |                                      | 14      |      |   |       |  
|Net utilization                                                 |  |                                      | 78      | %    |   | 97     | %
|Average daily time charter equivalent rate                      |  | $                                    | 29,607  |      | $ | 38,436 |  
|                                                                |  |                                      |         |      |   |        |  
|Joint Venture                                                   |  |                                      |         |      |   |        |  
|Number of vessels - managed                                     |  |                                      | 1       |      |   |       |  
|Total vessel days                                               |  |                                      | 76      |      |   |       |  
|Days worked                                                     |  |                                      | 73      |      |   |       |  
|Drydocking days                                                 |  |                                      |        |      |   |       |  
|Net utilization                                                 |  |                                      | 96      | %    |   |       |  
|Average daily time charter equivalent rate                      |  | $                                    | 52,140  |      | $ |       |  

|    |                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In 2008, we
 added two ATBs to our fleet and sold two ITBs subsequent to the three months
 ended March 31, 2008. In January 2009, the Golden
 State,the Joint Ventures product tanker managed by us was placed
 into service.

In
order to address reduced demand for our ITBs in the spot market for
transportation of petroleum products, we have sought to employ the ITBs in the
foreign transportation of grain for humanitarian organizations. In 2009, two of
our ITBs delivered grain to their final destinations in the first quarter of
2009 and one of our ITBs commenced a grain voyage in the first quarter of 2009
and completed its grain delivery in the second quarter of 2009. During 2008, we
employed all but one of our ITBs in the foreign transportation of grain for
humanitarian organizations. Unlike our petroleum voyages, where we generally
recognize revenue and expenses based upon the relative transit time in each
period to the total estimated transit time for each voyage, for our grain
voyages we recognize revenue and certain voyage expenses when the grain has
been delivered to its final destination, which may fall into the next reporting
period. However, certain grain voyage expenses are deferred and accrued as a
liability on our balance sheet during the voyage. These different
characteristics, together with the additions of theATB Galvestonand theATB
Brownsville in August 2008 and November 2008, respectively, as well
as the sale of the ITB Jacksonville and the ITB Groton
late in the fourth quarter of 2008, make a comparison of our results with prior
quarters and comparable periods in the prior year less meaningful.

31

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Three
Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

The three
month period ended March 31, 2009 is one day less than the three month period
ended March 31, 2008.

Voyage
Revenue.Voyage revenue was $47.9 million for
the three months ended March 31, 2009, a decrease of $3.6 million, or 6.9%, as
compared to $51.5 million for the three months ended March 31, 2008.

Revenues
are affected by several factors, such as the mix of charter types, the charter
rates attainable in the market, fleet utilization, other items such as fuel
surcharges, and the impact related to the difference in revenue recognition
policies for grain voyages compared to our other voyages.

There
was a $7.9 million decrease in revenues for the ITBfleet for the same
period 2008, primarily due to our sale of the ITB Jacksonville and ITB Groton
late in the fourth quarter of 2008. Revenues from the remaining four ITBs were
flat at $20.8 million in both periods. In the three months ended March 31,
2009, we recognized $15.8 million of revenues from grain voyages on the ITB Mobile
and the ITB
Philadelphia, that both commenced in the fourth quarter of 2008 and
discharged in the first quarter of 2009. In the same period in 2008, we
recognized $7.3 million in grain related revenues from a voyage that commenced
in the fourth quarter of 2008 on the ITB Philadelphia.In the first quarter of
2009 our ITBs were offhire for 135 days
due to poor economic conditions, compared with 20 offhire days for the same
period in 2008.

The
additions of the ATB Galvestonand the ATB Brownsville, placed in service in August
2008 and late November 2008, respectively, increased revenues by $2.9 million
and $3.4 million, respectively, over the prior period of 2008. Furthermore, the
addition of the Joint Ventures product tanker, the Golden State, managed by the
Partnership and placed in service in mid January 2009, increased revenues by
$3.8 million.

Offsetting
these revenue increases was a $5.8 million revenue decrease from the
Partnerships chemical fleet from the prior period, largely due to 14
drydocking days in 2009 for the Charleston, 56 offhire days on the Sea Ventureawaiting
charter and
overall unfavorable rates experienced on the chemical fleet largely due to poor
economic conditions experienced in the first quarter of 2009, which resulted in
our customers shipping smaller quantities of product than in the first quarter
of 2008.

Vessel
Operating Expenses.Vessel operating expenses were $16.2
million for the three months ended March 31, 2009, a decrease of $0.8 million,
or 5.0%, as compared to $17.0 million for the three months ended March 31, 2008.
As a percentage of revenue, vessel operating expenses were 33.7% for the
quarter ended March 31, 2009 as compared to 33.0% for the quarter ended March
31, 2008.

We
are responsible for vessel operating expenses regardless of the type of charter
under which we are operating. The decrease in dollar terms is largely
attributable to a reduction of $3.0 million in operating expenses related to
theITB
Jacksonville and the ITB Groton, both sold in the fourth quarter
of 2008, as well as a $0.7 million decrease in crew wages and benefits largely
due to three vessels being laid up in the first quarter of 2009, a decrease of
$0.4 million in repairs and maintenance, a decrease of $0.3 million in supplies
and a decrease of $0.2 million in other operating expenses.

Offsetting
these reductions was an increase in operating expenses due to the additions of
the ATB
Galvestonand theATB Brownsville, placed in service in
August 2008 and late November 2008, respectively, each of which incurred $1.0
million in vessel operating expenses, or $2.0 million in total, for the three
months ended March 31, 2009, as well as the addition of the Joint Ventures
product tanker, the Golden State, managed by the Partnership and
placed in service in mid January 2009, which increased vessel operating
expenses by $1.8 million. Vessel operating expenses increased as a percentage
of revenues as the percentage decrease in vessel operating expenses was less
than the percentage decrease in revenues.

32

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Voyage
Expenses. Voyage expenses were $15.8 million for
the three months ended March 31, 2009, an increase of $2.1 million, or 15.8%,
as compared to $13.7 million for the three months ended March 31, 2008.

The
addition of the ATB Brownsville, placed in service in late November 2008,
contributed $0.9 million in additional voyage expenses. The remainder of the
increase, $1.2 million, consisted of a net increase of $3.3 million in grain
related voyage expenses related to the two grain voyages that commenced in the
fourth quarter of 2008 and discharged in the first quarter of 2009, partially
offset by decreased fuel costs of approximately $2.1 million. Grain related
voyage expenses recorded in the first quarters of 2009 and 2008 for grain voyages
that commenced in the respective previous years fourth quarter were $5.1
million and $1.8 million. The addition of the ATB Galveston and the Golden State
did not affect voyage expenses, as the voyage expenses for those vessels are
borne by the customer.

General
and Administrative Expenses.
General and administrative expenses were $6.0 million for the three months
ended March 31, 2009 compared to $4.0 million for the three months ended March
31, 2008, an increase of $2.0 million or 50%.

The
increase of $2.0 million in general and administrative expenses is due to an
increase in professional fees of $2.2 million, consisting of legal and
consulting fees related to our review of strategic alternatives, negotiations
with our lenders and bankruptcy planning. A decrease in wages and benefits of
$0.3 million was partially offset by other expense increase of $0.1 million.

Depreciation
and Amortization. Depreciation and amortization was $8.0
million for the three months ended March 31, 2009, a decrease of $2.5 million,
or 24%, compared to $10.5 million for the three months ended March 31, 2008.

The
decrease in depreciation and amortization is primarily due to a decrease in
depreciation expense of $2.3 million due to vessel impairments on the four ITBs
remaining in our fleet and the Sea Venturerecorded in the third and
fourth quarters of 2008, respectively, a decrease of $1.8 million due to sale
of both the ITB
Jacksonville and the ITB Groton in the fourth quarter of 2008 and
a $0.8 million decrease in dyrdock amortization due to the timing of drydocks,
partially offset by a $1.2 million increase in depreciation related to the Golden
State, placed in service in January 2009, as well as depreciation of
$1.2 million related to the ATB Galveston and the ATB Brownsville, placed into
service in August 2008 and November 2008, respectively.

Impairment
charges. There were no impairment charges for the three months ended March 31, 2009 compared
to $5.7 million for the three months ended March 31, 2008. The 2008
impairment charges reflect the cancellation of the in process construction of
an ATB and the write-down of its value to zero.

Interest
Expense.
Interest expense was $16.3 million for the three months ended March 31, 2009,
an increase of $8.4 million, or 107%, compared to $7.9 million for the three
months ended March 31, 2008.

The
increase is primarily attributable to an increase in interest rate margin
effected by our October 2008 bank amendment, higher amortization of deferred
financing fees of approximately $1.8 million due to the acceleration of the
amortization period for deferred financing costs under our senior credit
facility to January 31, 2009 and the
fact that we are no longer capitalizing interest on the loans related to the
construction of the ATB Galveston and the ATB Brownsville, placed in
service in August 2008 and November 2008, respectively, by the Partnership as
well as the Golden
State,placed into service in January 2009 by the Joint Venture. The
increase in interest expense was partially
offset by lower LIBOR and base
rates. The Partnerships average effective interest rate for the three months
ended March 31, 2009 was 13.1% compared to 9.7% for the three months ended
March 31, 2008 and the Joint Ventures average effective interest rate for the
three months ended March 31, 2009 was 5.1% compared to 0.0% for the three
months ended March 31, 2008 given all interest had been capitalized during this
period on the Joint Venture.

Interest
Income.
Interest income, consisting of interest earned on our invested balances, was
$0.1 million for the three months ended March 31, 2009, compared to $1.0
million for the three months ended March 31, 2008.

The
decrease is primarily attributable to a decrease in invested balances in the
funds held in escrow accounts to fund the construction of our ATBs and to fund
our remaining commitment to the Joint Venture.

Net
Loss (Gain) on Derivative Financial Instruments. During the three months ended
March 31, 2009, we recorded a gain of $1.1 million related to derivative
financial instruments as compared to a gain of $0.4 million for the three
months ended March 31, 2008. In 2006, the Partnership entered into two interest
rate swap agreements that effectively converted a portion of the LIBOR-based
payments of our credit facility to a fixed rate. As a result of the October 20,
2008 amendment to the senior credit facility, we determined that these
contracts were no longer effective as a hedge and we recorded a gain of $0.9
million related to these contracts in the first quarter of 2009.

33

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Additionally,
the Joint Venture recorded a gain of $0.2 million during the three months ended
March 31, 2009 in connection with the interest rate cap it had entered into in
April 2007.

For
the three months ended March 31, 2008, the Partnership recorded a gain of $0.7
million in connection with its foreign currency forward contracts entered into
for the purchase of owner-furnished items relative to the newbuild ATB series.
Due to the acceleration or deferral of certain payments scheduled for
owner-furnished items relative to the ATBs being constructed, a portion of the
foreign currency contracts were ineffective as a hedge. Due to this hedge
ineffectiveness, a gain on derivative financial instruments was recognized in
our Consolidated Statement of Operations. This gain was partially offset by a
loss of $0.3 million recorded by the Joint Venture in the three months ended
March 31, 2008 in connection with the interest rate cap it had entered into in
April 2007.

For
information on our interest rate swaps and Joint Venture interest rate cap, see
Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Provision
for Income Taxes.The
provision for income taxes was $0.1 million for the three months ended March
31, 2009, compared to a provision for income taxes of $0.3 million for the
three months ended March 31, 2008.

A
tax provision of $0.1 million related to unrecognized tax benefits was recorded
for the three months ended March 31, 2009. For the comparable period in 2008,
the provision recorded in the first quarter of 2008 is primarily due to a
provision of $0.1 million recorded upon the election to treat the owners of the
Sea
Venture and ITB Philadelphia as corporations for tax
purposes, a provision of $1.1 million recorded to reserve for deferred tax
assets created during the period as a result of net operating losses generated
and $0.1 million of unrecognized tax benefits recorded during the first quarter
of 2008. Offsetting these items were losses at the various corporate
subsidiaries generating a tax benefit of $1.0 million.

Noncontrolling
Interest in Joint Venture.This represents the Noncontrolling interest
holders share of the gain/loss in the Joint Ventures net income or loss. The
net gain for the three months ended March 31, 2009 is largely attributable to the
operating performance of the Golden Stateplaced into service in January 2009 while
the loss for the three months ended March 31, 2008 was largely due to general and
administrative fees incurred on the Joint Venture. In the three months ended March 31,
2008, we allocated 60% of the losses to our Joint Venture partners based on their
ownership of 60% of the equity in the Joint Venture.
 Subsequent
to March 31, 2008, we determined that all losses from the Joint Venture are allocated to
the Partnership and all gains from the Joint Venture are allocated to the Noncontrolling
interest holder.  If we had followed this policy in the first quarter of 2008, we
would have been allocated an additional $0.4 million in losses.

Net Loss.The
net loss for the three months ended March 31, 2009 was $13.7 million, an
increase in net loss of $7.9 million, compared to a net loss of $5.8 million
for the three months ended March 31, 2008. The increase of $7.9 million
in net losses was due to an increase of $9.4 million in net interest expense
and a decrease in income on the noncontrolling interest in Joint Venture of
$0.8 million partially offset by an increase in operating income of $1.4
million, an increase of $0.7 million in gains on derivative financial
instruments and a $0.2 million decrease in the provision for income taxes.

Liquidity and Capital Resources

Operating Cash Flows

Net
cash provided by operating activities was $1.3 million and $3.5 million for the
three months ended March 31, 2009 and 2008, respectively. The decrease in
operating cash flows of $2.2 million in the three months of 2009 compared to
the three months of 2008 is the result of the increase in net loss of $7.9
million, a decrease of $5.2 million in non-cash items partially offset by an
improvement in working capital net assets of $10.9 million.

The
decrease in non-cash charges of $5.2 million for the three months ended March
31, 2009 compared to the three months ended March 31, 2008 is due primarily
to the $5.7 million impairment related to the cancellation of the in progress
construction of an ATB for the three months ended March 31, 2008 partially
offset by $0.5 million in the net changes in various other non-cash
charges.

34

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Our
working capital requirements improved by $10.9 million for the three months
ended March 31, 2009 as compared to the three months ended March 31, 2008. This
improvement was largely due to an increase in our accrued expenses and other
liabilities of $10.8 million largely related to the Partnerships non payment
of interest under its senior credit facility and non-payment of interest on
$91.29 million on its senior notes in the first quarter of 2009 of $6.2
million, as well as a decrease in prepaid expenses and other current assets of
$6.4 million, largely related to the timing and discharge of grain voyages.
This improvement was partially offset by an increase of $0.8 million in
capitalized drydocking expenditures and an $5.5 million increase in other
working capital requirements. Working capital requirements are affected by the
level of our participation in the spot markets and the timing of our grain
voyages and related impact of the accounting policies for grain voyages.
Participation in the spot market requires us to carry higher amounts of working
capital, as under spot charters fuel costs are our responsibility and are not
realized economically until payment is made to us by the customer. Additionally,
recognition of grain related freight revenue and its related recording of
accounts receivable is at voyage completion with the related payments generally
received at the completion of a voyage for grain voyages, compared to time
charters, where payment is generally due at the beginning of a fixed period of
time, such as a month. Additionally, grain voyages tend to be substantially
longer than refined petroleum product voyages thus incurring a significant
amount of deferred grain expenses that are not expensed until voyage
completion.

Capitalized
drydocking expenditures increased $0.8 million for the three months ended March
31, 2009 as compared to the three months ended March 31, 2008 largely due to
the timing, completion status and actual cash payments of drydockings at the
respective year-ends. In 2008, the Chemical Pioneer, the Houston and the Charleston
underwent drydockings in the fourth quarter, with the Charlestons drydocking
being only partially completed at December 31, 2008. Drydocking expenditures
for the three months ended March 31, 2008 were $2.0 million, which consisted
largely of expenditures for drydockings related to accrued expenses for
drydockings that took place in 2007.

Investing Cash Flows

Net
cash used in investing activities totaled $66.9 million for the three months
ended March 31, 2009, an increase of $23.9 million compared to net cash used of
$43.0 million for the three months ended March 31, 2008. For the three months
ended March 31, 2009, the Partnership made $6.2 million of payments toward the
construction of the ATBs, all of which was funded from our restricted cash
accounts and the Joint Venture made $67.6 million of payments toward the
construction of product tankers, all of which was funded from borrowings under
the Joint Ventures revolving credit facility

For
the three months ended March 31, 2008, we made $22.8 million of payments toward
the construction of the ATBs, all of which was funded from our restricted cash
accounts, and the Joint Venture made $59.4 million of payments toward the
construction of the product tankers, of which $11.9 million was funded from our
restricted cash accounts, $17.8 million was funded by the Joint Venture
Investors and $29.7 million was funded from borrowings under the Joint
Ventures revolving credit facility. Additionally, in the three months ended
March 31, 2008, we sold some of our surplus equipment for proceeds of $0.1
million.

Financing Cash Flows

For
the three months ended March 31, 2009, net cash provided by financing activity
was $68.4 million. The Joint Venture received a total of $68.4 million from
borrowings under the Joint Ventures revolving credit facility.

For
the three months ended March 31, 2008, net cash provided by financing activity
was $42.0 million. Our Joint Venture received a total of $47.8 million from the
Joint Venture Investors, of which $17.9 million was equity contributions, and
$29.9 million was pursuant to the Joint Ventures revolving credit facility. We
also made scheduled debt payments of $0.8 million in the first quarter of 2008
and we distributed $5.1 million to our holders of common units in respect to
the fourth quarter of 2007.

Liquidity

The
liquidity pressures faced by the Partnership described in its Form 10-K for the
year ended December 31, 2008 continued in the first quarter of 2009 and led to
the Partnership, together with all of its wholly-owned subsidiaries,
USSGP and USS Vessel Management LLC (collectively, the Company) filing
for bankruptcy on April 29, 2009. See Proceedings Under Chapter 11 above for additional information.

35

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The
ability of the Partnership to continue as a going concern is dependent upon,
among other things, (i) the Partnerships ability to comply with the terms
and conditions of the cash collateral order entered by the Bankruptcy Court in
connection with the Bankruptcy Cases; (ii) the ability of the Partnership
to generate cash from operations; (iii) the ability of the Partnership to
obtain confirmation of and to consummate the Plan or another plan of
reorganization under the Bankruptcy Code; and (iv) the cost, duration and
outcome of the reorganization process. Uncertainty as to the outcome of these
factors raises substantial doubt about the Partnerships ability to continue as
a going concern. We are currently evaluating various courses of action to
address the operational and liquidity issues the Partnership is facing, and
formulating plans for improving operations. There can be no assurance that any
of these efforts will be successful. These unaudited consolidated financial
statements do not include any adjustments that might result should the
Partnership be unable to continue as a going concern. Consistent with generally
accepted accounting principles preparing these unaudited consolidated financial
statements on a going concern basis contemplates the realization of assets and
the discharge of liabilities in the normal course of business for the
foreseeable future.

We are
dependent solely on our cash flow from operations to meet our operating, debt
service and working capital requirements. Our cash flow from operations
fluctuates from quarter to quarter based on, among other things:

| |   |                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the level of consumption of refined
 petroleum, petrochemical and commodity chemical products in the markets in
 which we operate;                   
| |   |                                                                                                                                                      
| | · | the level of demand for overseas
 transportation of grain for humanitarian organizations;                                                            
| |   |                                                                                                                                                      
| | · | the prices we obtain for our services;                                                                                                               
| |   |                                                                                                                                                      
| | · | the level of demand for our vessels;                                                                                                                 
| |   |                                                                                                                                                      
| | · | the level of our operating costs;                                                                                                                    
| |   |                                                                                                                                                      
| | · | delays in the delivery of newbuilds and the
 resulting delay in receipt of revenue from those vessels;                                               
| |   |                                                                                                                                                      
| | · | the effect of governmental regulations and
 maritime self-regulatory organization standards on the conduct of our
 business;                         
| |   |                                                                                                                                                      
| | · | the level of unscheduled off-hire days and
 the timing of, and number of days required for, scheduled drydockings of our
 vessels;                   
| |   |                                                                                                                                                      
| | · | prevailing economic and competitive
 conditions;                                                                                                     
| |   |                                                                                                                                                      
| | · | the level of capital expenditures we are
 required to make, including for drydockings for repairs, newbuildings and
 compliance with new regulations;
| |   |                                                                                                                                                      
| | · | fluctuations in our working capital needs;                                                                                                           
| |   |                                                                                                                                                      
| | · | the refusal of certain of our vendors to
 extend trade credit to us; and                                                                             
| |   |                                                                                                                                                      
| | · | the costs incurred in connection with our
 Bankruptcy Cases.                                                                                         

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 forward-looking statements.

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

| |   |                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------
| | · | forecasts of our ability
 to successfully reorganize and emerge from bankruptcy;                          
| |   |                                                                                                           
| | · | our future financial
 condition or results of operations and our future revenues, expenses and
 liquidity;
| |   |                                                                                                           
| | · | our business strategy and
 other plans and objectives for future operations;                              

36

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| |   |                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | planned capital
 expenditures and availability of capital resources to fund capital
 expenditures;                                                                             
| |   |                                                                                                                                                                                
| | · | our ability to maximize
 the use of our vessels, particularly those trading in the spot market;                                                                                
| |   |                                                                                                                                                                                
| | · | expected demand in the
 domestic tank vessel market in general and the demand for our tank vessels in
 particular;                                                             
| |   |                                                                                                                                                                                
| | · | increasing supply of newly
 built tank vessels;                                                                                                                                
| |   |                                                                                                                                                                                
| | · | expected charter rates;                                                                                                                                                        
| |   |                                                                                                                                                                                
| | · | our ability to enter into
 and maintain long-term relationships with major oil and chemical companies;                                                                         
| |   |                                                                                                                                                                                
| | · | future supply of, and
 demand for, refined petroleum products;                                                                                                                 
| |   |                                                                                                                                                                                
| | · | increasingly stringent
 industry vetting standards used by our customers;                                                                                                      
| |   |                                                                                                                                                                                
| | · | increases in domestic
 refined petroleum product consumption;                                                                                                                  
| |   |                                                                                                                                                                                
| | · | the likelihood of a repeal
 of, or a delay in the phase-out requirements for single-hull vessels mandated
 by, the Oil Pollution Act of 1990 (OPA 90);                       
| |   |                                                                                                                                                                                
| | · | the absence of disputes
 with our customers; and                                                                                                                               
| |   |                                                                                                                                                                                
| | · | our expected cost of
 complying with OPA 90 and our ability to finance such costs, including our
 ability to replace our existing vessels that must be phased out under OPA 90.

These
forward-looking statements are made based upon managements current plans,
expectations, estimates, assumptions and beliefs in light of our experience and
our perception of historical trends, current conditions and expected future
developments. Such forward looking information is subject to known and unknown
risks and uncertainties which may cause actual results, levels of activity and
achievements to differ materially from those expressed or implied by such information.
We caution that forward-looking statements are not guarantees.

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

| |   |                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | the time period required
 for us to reorganize and emerge from bankruptcy;                                                                                           
| |   |                                                                                                                                                                      
| | · | the terms of our
 reorganization;                                                                                                                                    
| |   |                                                                                                                                                                      
| | · | insufficient cash from
 operations;                                                                                                                                  
| |   |                                                                                                                                                                      
| | · | our liquidity;                                                                                                                                                       
| |   |                                                                                                                                                                      
| | · | a decline in demand for
 our tank vessels;                                                                                                                           
| |   |                                                                                                                                                                      
| | · | an increase in competitive
 tank vessel capacity;                                                                                                                    
| |   |                                                                                                                                                                      
| | · | our levels of indebtedness
 and our ability to obtain credit on satisfactory terms;                                                                                  
| |   |                                                                                                                                                                      
| | · | our ITBs remaining
 eligible to participate in the UWILD Program;                                                                                                    
| |   |                                                                                                                                                                      
| | · | failure to comply with the
 Merchant Marine Act of 1920 (the Jones Act);                                                                                           
| |   |                                                                                                                                                                      
| | · | intense competition in the
 domestic tank vessel industry;                                                                                                           
| |   |                                                                                                                                                                      
| | · | fluctuations in voyage
 charter rates;                                                                                                                               
| |   |                                                                                                                                                                      
| | · | the effect of our ceasing
 to be the manager of the vessels being constructed by the joint venture
 formed to finance the construction of up to nine product tankers;
| |   |                                                                                                                                                                      
| | · | a decline in demand for
 refined petroleum, petrochemical and commodity chemical products;                                                                           

37

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| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| | · | the occurrence of marine
 accidents or other hazards;                                          
| |   |                                                                                                
| | · | the loss of any of our
 largest customers;                                                     
| |   |                                                                                                
| | · | increases in interest
 rates;                                                                  
| |   |                                                                                                
| | · | weather interference with
 our customers or our business operations;                          
| |   |                                                                                                
| | · | delays or cost overruns
 in, or insufficient funds to finance, the construction of new vessels;
| |   |                                                                                                
| | · | changes in international
 trade agreements;                                                    
| |   |                                                                                                
| | · | modification or
 elimination of the Jones Act; and                                             
| |   |                                                                                                
| | · | adverse developments in
 our marine transportation business.                                   

Please read
Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2008 for a discussion of the factors that could cause our actual
results of operations or our actual financial condition to differ from our
expectations. Except as required by applicable securities laws, we do not
intend to update these forward looking statements and information.

ITEM 3. 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 and based on our outstanding debt balance for that portion of our debt
outstanding that is not subject to the effects of our hedge contracts in place,
a 1% change in our variable interest rates would have increased our interest
expense by approximately $1.2 million for the three months ended March 31,
2009.

We
utilized 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. These derivative
instruments were originally designated as hedges and, accordingly, the gains
and losses from changes in derivative fair values are recognized as
comprehensive income as required by FAS Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, (FAS 133), as amended. Gains and losses were
recognized in the statement of operations in the same period that the
underlying cash flow impacts the statement of operations. As a result of the
October 20, 2008 amendment to our senior credit facility, we determined that as
of October 1, 2008, these contracts no longer met the hedge effectiveness
requirements and, accordingly, discontinued the hedge accounting treatment. Any
subsequent gains or losses due to change in fair value of the contracts
beginning October 1, 2008 were recorded to earnings. The fair value of these
contracts at September 30, 2008 is reflected in other comprehensive income in
the accompanying financial statements. We are exposed to credit-related losses
in the event of nonperformance by counterparties to these financial
instruments. The counterparty to one of the interest rate swap covering $97.8
million notional amount of our debt is Lehman Brothers Special Financing, Inc.,
which has filed for protection under the U.S. bankruptcy laws. We do not hold
or issue interest rate swaps for trading purposes.

We
had two interest rate swap agreements as of March 31, 2009. The intent of these
agreements is to reduce interest rate risk by swapping an unknown variable
interest rate, three month LIBOR, reset quarterly, for a fixed rate. As of
March 31, 2009 the fair market values of our two interest rate swaps were a
loss of $8.6 million and a loss $6.0 million.

38

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The
following is a summary of the economic terms of these agreements at March 31,
2009 (dollars in thousands):

|                       |  |    |            |  
|---------------------- |  | -- | ---------- | -
|Notional amount        |  | $  | 121,875    |  
|Fixed rate paid        |  |    | 5.355      | %
|Variable rate received |  |    | 1.459      | %
|Effective date         |  |    | 8/15/2006  |  
|Expiration date        |  |    | 8/6/2012   |  
|Fair Value             |  | ($ | 8,575      | )
|                       |  |    |            |  
|Notional amount        |  | $  | 97,750     |  
|Fixed rate paid        |  |    | 4.899      | %
|Variable rate received |  |    | 1.459      | %
|Effective date         |  |    | 12/12/2006 |  
|Expiration date        |  |    | 8/6/2012   |  
|Fair Value             |  | ($ | 6,028      | )

Immediately
following our filing for bankruptcy in April 2009, the counterparties to these
interest rate swap agreements elected to early terminate the interest rate swap
agreements.

Joint
Venture Hedging

On
February 27, 2007, the Joint Venture purchased a $100.0 million notional amount
nine year interest rate cap effective April 1, 2007 for $1.9 million, including
transaction fees. This interest rate cap of the three month U.S. Dollar LIBOR
of 6% is part of a hedging strategy in place at the Joint Venture to protect the
value of its vessels and the chartering contracts thereon. Upon the completion
of the construction of each vessel, the Joint Venture expects to sell the
vessel together with any chartering contract that may be in place on such
vessel. Since the long-term chartering contracts entered into by the Joint
Venture will result in a fixed stream of cash flows over a multi-year period,
the value that the Joint Venture may be able to obtain upon the sale of the
combined vessel and chartering contract is subject to volatility based upon how
interest rates fluctuate. The Joint Venture is utilizing the interest rate cap
to reduce the potential negative impacts to the Joint Ventures cash flows that
could result in movements in interest rates between the date a chartering
contract is entered into for the first product tanker and the anticipated sale
date of such combined vessel and chartering contract. The Joint Venture does
not plan to hold or issue derivative financial instruments for trading
purposes, but has not performed the activities necessary to qualify the
contract for hedge accounting treatment under FAS 133, as amended. The
fair market value of the interest rate cap at March 31, 2009 was $1.0 million.
Changes in the fair value of those instruments are reported in earnings.

The
following is a summary of the economic terms of this agreement at March 31,
2009 (dollars in thousands):

|                  |  |   |          |  
|----------------- |  | - | -------- | -
|Notional amount   |  | $ | 100,000  |  
|Interest rate cap |  |   | 6.00     | %
|Effective date    |  |   | 4/1/2007 |  
|Expiration date   |  |   | 4/1/2016 |  
|Fair Value        |  | $ | 965      |  

ITEM
4. Controls And Procedures-

Evaluation of Disclosure Controls and
Procedures

In
accordance with Securities Exchange Act Rules 13a-15 and 15d-15, we
carried out an evaluation, under the supervision and with the participation of
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of March 31, 2009 to provide
reasonable assurance that information required to be disclosed in the reports
that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms and such information is accumulated
and communicated to management as appropriate to make timely decisions
regarding required disclosures.

39

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Changes in Internal Control Over Financial
Reporting

There
has been no change in our internal control over financial reporting that
occurred during the three months ended March 31, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

PART II OTHER
INFORMATION

|        |                  
|------- | -----------------
|ITEM 1. | 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 $0.2
million per claim. We provide for amounts we expect to pay.

On
July 10, 2009, the Partnership and its wholly-owned subsidiaries USS Product
Carriers LLC (Product Carriers), Product Manager and USS PC Holding Corp.
(collectively the USS Entities) entered into a settlement agreement with the
Joint Venture Investors and the Joint Venture Lenders (such investors and
lenders collectively the Blackstone/Cerberus Entities), to settle litigation
relating to control of the operations of the Joint Venture. Under the terms of
the settlement, which was approved by the Bankruptcy Court on July 17, 2009 and
effective on July 28, 2009 (the Effective Date):

| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (i)   | on the Effective Date
 Product Carriers transferred its Class B member interest to the Joint Venture
 Investors for one dollar and no longer has an interest in, or the right to
 act as managing member of, the Joint Venture;                                 
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | (ii)  | in consideration of the
 termination of Product Managers right to manage the operations of the Joint
 Venture:                                                                                                                                                 
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |       |                                                                                                                                                                                                                                                                  | (a) | the Blackstone/Cerberus
 Entities will pay Product Manager an aggregate of $14 million, of which $9
 million was paid on the Effective Date, $2.3 million will be paid 40 days
 after the orderly transition of management of the vessels from Product
 Manager to a replacement manager appointed by the Blackstone/Cerberus
 Entities, and $2.7 million will be paid in equal monthly installments through
 December 2010;
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |       |                                                                                                                                                                                                                                                                  | (b) | the Joint Venture will pay
 to Product Manager 50% of the first $1 million of any cost savings received
 by the Joint Venture in respect of the three vessels still under construction
 if those vessels are delivered under the contracted cost; and                                                                                                                                                                       
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  |       |                                                                                                                                                                                                                                                                  | (c) | the Joint Venture will pay
 to Product Manager 50% of the first $500,000 of any cost savings received by
 the Joint Venture in respect of the last vessel still under construction if
 that vessel is delivered under the contracted cost, provided that this amount
 will only be paid to the extent the cost savings were not used to pay the
 amount due under clause (ii)(b) above;                                     
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | (iii) | the USS Entities have a
 right of first offer to purchase the Joint Ventures vessels to the extent
 the Joint Venture determines to offer all or any portion of them for sale in
 the future, although the Joint Venture has no obligation to accept any offer;
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | (iv)  | the contracts between the
 USS Entities or their affiliates and the Joint Venture are being terminated;                                                                                                                                                         
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | (v)   | the USS Entities and the
 Blackstone/Cerberus Entities have exchanged broad, global releases; and                                                                                                                                                               
| |  |       |                                                                                                                                                                                                                                                                  |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | (vi)  | on the Effective Date, all
 the litigation between the USS Entities and the Blackstone/Cerberus Entities
 was dismissed with prejudice.                                                                                                                         

|         |             
|-------- | ------------
|ITEM 1A. | Risk Factors

None.

|        |                                                             
|------- | ------------------------------------------------------------
|ITEM 2. | Unregistered Sales of Equity Securities and Use of
 Proceeds

None.

40

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|        |                                
|------- | -------------------------------
|ITEM 3. | Defaults Upon Senior Securities

Pursuant to
forbearance agreements entered into with a majority-in-interest of the lenders
under the Senior Credit Facility, we did not make the December31,
2008 and March 31, 2009 principal and interest payments due under the Senior
Credit Facility. In addition, we were in default under certain financial
covenants in the Senior Credit Facility.

The
Partnership did not make the $6.5 million interest payment due on February 15,
2009 in respect of its Second Lien Notes. Under the terms of the indenture
governing the Second Lien Notes, the Partnership had a grace period of 30 days
from the payment due date with respect to the interest payment before the
nonpayment became an event of default under the indenture. In February 2009,
holders of $91.3 million of the Second Lien Notes, representing 91.3% of the
Second Lien Notes, delivered letters to the Partnership waiving their February
15, 2009 interest payment on the Second Lien Notes, and all future interest
payments on the Second Lien Notes, until the earlier of six months following
repayment in full of all amounts outstanding under the senior credit facility
and the Partnership seeking bankruptcy protection. On March 17, 2009, the
Partnership provided $0.6 million to the Trustee to pay the interest due on the $8.7 million
principal amount of Second Lien Notes for which the February 15, 2009 interest
payment was not waived.

As
a result of our bankruptcy filing, all amounts due under our Senior Credit
Facility and in respect of the Second Lien Notes became immediately due and
payable.

|        |                                                    
|------- | ---------------------------------------------------
|ITEM 4. | Submission of Matters to a Vote of Security Holders

None.

|        |                  
|------- | -----------------
|ITEM 5. | Other Information

First Amended Joint Plan of Reorganization

On August 6, 2009, the
Company filed its First Amended Joint Plan of Reorganization with the Bankruptcy
Court (the Plan). Under the Plan:

|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|- |  | ----------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· |  | The Senior Secured Lenders
 will receive:
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  | (i)                                       | new senior secured term
 notes issued by reorganized USSP (Reorganized
 USSP) in an aggregate principal amount equal to $240 million and
 guaranteed by the other reorganized debtors. The senior secured term notes
 will:
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  |                                           | (A)                                                                                                                                                                                                                           | be secured by a first
 priority lien on substantially all of the assets of the reorganized debtors;                                                                                                                                                                                                                                   
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  |                                           | (B)                                                                                                                                                                                                                           | require quarterly
 mandatory prepayment from excess cash flow (as defined in the Plan) once the
 reorganized debtors have achieved a $25 million cash balance in the first
 year following the Companys emergence from bankruptcy and a $20 million
 (subject to adjustment under certain circumstances) cash balance thereafter;    
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  |                                           | (C)                                                                                                                                                                                                                           | amortize at the annual
 rate of 1% of the aggregate amount of the new senior secured term notes
 beginning in the first full year following the Companys emergence from
 bankruptcy;                                                                                                                                                 
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  |                                           | (D)                                                                                                                                                                                                                           | have a final maturity date
 of August 7, 2013;                                                                                                                                                                                                                                                                                        
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  |                                           | (E)                                                                                                                                                                                                                           | bear interest at a rate of
 LIBOR plus 7.20%, subject to a 2% LIBOR floor; and                                                                                                                                                                                                                                                        
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  |                                           | (F)                                                                                                                                                                                                                           | be subject to certain
 customary covenants, including without limitation an interest coverage test
 (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage
 ratio to be determined (but consistent with the interest coverage test and
 the projections provided by the Partnership to the Senior Secured Lenders).
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  | (ii)                                      | new junior secured term
 notes issued by Reorganized USSP
 in an aggregate principal amount equal to $60 million and guaranteed by the
 other reorganized debtors. The junior secured term notes will:                       
|  |  |                                           |                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                       
|  |  |                                           | (A)                                                                                                                                                                                                                           | be secured by a second
 priority lien on substantially all of the assets of the reorganized debtors;                                                                                                                                                                                                                                  

41

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|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (B)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | require, after the senior
 secured term notes are repaid in full, quarterly mandatory prepayment from
 excess cash flow (as defined in the Plan once the reorganized debtors have
 achieved a $25 million cash balance in the first year following the Companys
 emergence from bankruptcy and a $20 million (subject to adjustment under
 certain circumstances) cash balance thereafter;
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (C)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | amortize, after the senior
 secured term notes are repaid in full, at the annual rate of 1% of the
 aggregate amount of the new junior secured term notes;                                                                                                                                                                                                                                 
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (D)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | have a final maturity date
 of August 7, 2013;                                                                                                                                                                                                                                                                                                                                             
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (E)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | bear interest at a rate of
 LIBOR plus 0.50%, subject to a 2% LIBOR floor; and                                                                                                                                                                                                                                                                                                             
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | (F)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | be subject to certain
 customary covenants, including without limitation an interest coverage test
 (EBITDA/net interest) of at least 1.5x to 1 and a debt to EBITDA coverage
 ratio to be determined (but consistent with the interest coverage test and
 the projections provided by the Partnership to the Senior Secured Lenders).                                                     
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|  |  | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | all of Reorganized USSPs
 Class A Common Stock, representing fifty percent (50%) of Reorganized USSPs
 common stock on a fully diluted basis before giving effect to the Class B
 Common Stock to be issued pursuant to a management equity plan described
 below, provided that Senior Secured Lenders that are not U.S. Citizens for
 U.S. Coastwise Trade Law purposes will receive a combination of Class A
 Common Stock and warrants to purchase Class A Common Stock (Class A
 Warrants).
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|· |  | The holders of the Second
 Lien Notes will receive shares of Class B Common Stock representing, on a
 fully diluted basis, fifty percent (50%) of the common stock of Reorganized
 USSP, before giving effect to the Class B Common Stock to be issued pursuant
 to a management equity plan described below, provided that holders of the
 Second Lien Notes that are not U.S. Citizens for U.S. Coastwise Trade Law
 purposes will receive a combination of Class B Common Stock and warrants to
 purchase Class B Common Stock. The Second Lien Notes will be cancelled.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|· |  | The Class A Common Stock
 and the Class B Common Stock will have the same ownership and voting rights,
 provided that dividends and other distributions declared in respect of
 Reorganized USSPs common stock will first be distributed in respect of the
 Class A Common Stock in an amount equal to, in aggregate, approximately $54
 million (dependent on the termination value of our interest rate swaps)), the
 unpaid portion of which will increase by four percent (4%) per year
 (non-compounded) (the Priority Distribution Amount). The Class A Warrants
 will provide that in the event Reorganized USSP makes a distribution to
 holders of Class A Common Stock in respect of the Priority Distribution
 Amount, each holder of such Class A Warrant will receive a cash payment equal
 to the amount it would have received had it exercised its Class A Warrant
 immediately prior to such distribution being made and owned Class A Common
 Stock as the time such distribution was being made.
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|· |  | In no event will persons
 who are not U.S. Citizens for U.S. Coastwise Trade Law be issued common stock
 of Reorganized USSP representing in aggregate more than 23% of the common
 stock to be outstanding on the date the Company emerges from bankruptcy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|· |  | Reorganized USSP will
 adopt a management equity plan providing for the issuance to management of
 18.18% of the Class B Common Stock, representing on a fully-diluted basis 10%
 of the outstanding common stock of Reorganized USSP. Fifty percent (50%) of
 such equity to be available under the plan will be issued to management at
 the time the Company emerges from bankruptcy, with 25% vesting immediately
 and an additional 25% vesting on the first, second and third anniversaries of
 the Companys emergence from bankruptcy. The remaining fifty percent (50%)
 available under the management equity plan will be issuable from time to time
 as determined by the board of directors of Reorganized USSP.                                                                                                                                                                                                                                                                                         
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                            
|· |  | The warrants to be issued
 to the persons who are not U.S. Citizens for U.S. Coastwise Trade Law
 purposes will have an exercise price of $0.001 per share, will expire
 December 31, 2029 and may only be exercised by persons who are U.S. Citizens
 for U.S. Coastwise Trade Law purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

42

---



|  |  |                                                                                                                                                                                                                                                                                                                                                                                      |  | 
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | 
|· |  | The existing and
 outstanding common units, subordinated units and general partnership
 interests of USSP will be cancelled without the payment of any amount to the
 holders thereof.                                                                                                                                                                                              
|  |  |                                                                                                                                                                                                                                                                                                                                                                                      |  | 
|· |  | Customary releases will be
 provided to the Company, its current and former officers and directors, the
 Senior Secured Lenders, the holders of the Second Lien Notes, the various
 agents and trustees under the debt agreements and the respective officers,
 directors, employees, agents, advisors and professionals of each of the
 foregoing, subject to specified exceptions.

The
implementation of the Plan is dependent upon a number of factors, including
final documentation, the approval of a disclosure statement and confirmation
and consummation of the Plan in accordance with the provisions of the
Bankruptcy Code.

Rand
Logistics Offer to Acquire Substantially all Assets of the Partnership

On
July 30, 2009, Rand Logistics, Inc. (Rand) submitted a non-binding proposal
via letter to the board of directors of USSGP pursuant to which Rand proposed,
as an alternative to the Partnerships proposed plan of reorganization dated
July 10, 2009, a transaction in which Rand would acquire the majority of the
assets, and assume certain liabilities, of the Partnership and its subsidiaries
for a combination of cash, notes and warrants (the Rand Proposal).

On
August 4, 2009, after consultation with its financial and legal advisors and
the Steering Committee of the secured lenders, the Partnership advised Rand
that the board of directors had determined that the Partnerships proposed plan
of reorganization dated July 10, 2009 will deliver a higher value to all the
Partnerships stakeholders than the non-binding alternative plan of
reorganization proposed by Rand. The Partnership also advised Rand that as a
result, the board of directors did not believe it is appropriate to negotiate
an amendment to the Disclosure Statement to permit the Partnerships creditors
the option to consider the Rand Proposal as an alternative to the Partnerships
July 10, 2009 proposed plan of reorganization.

On
August 6, 2009, Rand responded to the Partnerships August 4, 2009 letter,
disagreeing with the Boards conclusion and making slight changes to the Rand
Proposal.

On
August 11, 2009, after consideration of Rands August 6, 2009 letter and
consultation with its financial and legal advisors, the Partnership advised
Rand that the board of directors had determined that the Partnerships proposed
plan of reorganization dated August 6, 2009 (the Plan) will deliver a higher
value to all the Partnerships stakeholders than the non-binding, highly
speculative alternative plan of reorganization proposed by Rand. The
Partnership also advised Rand that as a result the board of directors did not
believe it is in the best interests of all the Partnerships stakeholders to
negotiate an amendment to the Disclosure Statement to permit the Partnerships
creditors the option to consider Rands proposal as an alternative to the Plan.
The Partnership also advised Rand that absent an offer at a value that the
Board of Directors determines is at least reasonably equivalent to the value
provided by the Plan and that has been approved by the Rand Board of Directors,
is fully financed with no conditions to the financing and contains no
conditions to closing other than approval of the transaction by the Bankruptcy
Court, the Board does not believe it to be in the best interests of all the
Partnerships stakeholders to disrupt its current process and introduce
uncertainty by negotiating with Rand regarding a non-binding, highly
speculative transaction.

43

---



|        |         
|------- | --------
|ITEM 6. | Exhibits

|                 |  |                                                                                                                                                                                             
|---------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 
 Number |  | Description                                                                                                                                                                                 
|                 |  |                                                                                                                                                                                             
|                 |  |                                                                                                                                                                                             
|10.1             |  | First Amendment to the
 Plan Support Agreement, dated as of July 10, 2009 (incorporated by reference
 to Exhibit 10.1 to the Partnerships Current Report on Form 8-K filed July
 21, 2009).
|                 |  |                                                                                                                                                                                             
|10.2             |  | Settlement Agreement,
 dated as of July 10, 2009 (incorporated by reference to Exhibit 10.1 to the
 Partnerships Current Report on Form 8-K filed July 21, 2009).                          
|                 |  |                                                                                                                                                                                             
|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.                                                                                   

44

---



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:
August 12, 2009

| |                                       |                                          
| | ------------------------------------- | -----------------------------------------
| | U.S. SHIPPING PARTNERS
 L.P.         
| | By: US Shipping General
 Partner LLC,
| | its general partner                  
| |                                       |                                          
| | By:                                   | /s/ Ronald L. OKelley                   
| |                                       |                                          
| |                                       | Ronald L. OKelley                       
| |                                       | President and Chief
 Executive Officer   
| |                                       |                                          
| | By:                                   | /s/ Dennis J. Fiore                      
| |                                       |                                          
| |                                       | Dennis J. Fiore                          
| |                                       | Vice President - Chief Financial
 Officer

45

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