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UNITED STATES
        SECURITIES AND EXCHANGE COMMISSION
        Washington, 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 September 30,
                    2007            
|                                                                                 
|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)

(Former name, former address and former fiscal year, if
        changed since last report)

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 is a large
        accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
        “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act. (Check one):

|                                              |                                                             |                                                                
|--------------------------------------------- | ----------------------------------------------------------- | ---------------------------------------------------------------
|Large accelerated filer
                    o | Accelerated
                    filer
                    x | Non-accelerated
                    filer
                    o

Indicate by check mark whether the Registrant is a shell
        company (as defined in Rule 12b-2 of the Exchange Act).

| |                           |  |                          | 
| | ------------------------- |  | ------------------------ | 
| | Yes
                    o |  | No
                    x | 

The number of the registrant’s common units
        outstanding as of October 31, 2007 was 11,341,548 (including 8,000 restricted common
        units). At that date, 6,899,968 subordinated units were also outstanding.

---



U.S. SHIPPING PARTNERS L.P.
        FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2007
        TABLE OF CONTENTS

|           |  |                                                                                                                                                                                                   |  |          | 
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | 
|           |  |                                                                                                                                                                                                   |  | Page No.
|           | 
|           |  | PART I—FINANCIAL
                    INFORMATION                                                                                                                                                  |  |         
|          
|Item 1.    |  | Financial
                    Statements                                                                                                                                                          |  | 1        | 
|           |  |                                                                                                                                                                                                   |  |          | 
|           |  | Unaudited Condensed Consolidated Balance
                    Sheets as of September 30, 2007 and December 31, 2006                                                                                |  | 1        | 
|           |  |                                                                                                                                                                                                   |  |          | 
|           |  | Unaudited Condensed Consolidated Statements of
                    Operations and Comprehensive Income for the three and nine-month periods ended
                    September 30, 2007 and 2006 |  | 2        | 
|           |  |                                                                                                                                                                                                   |  |          | 
|           |  |                                                                                                                                                                                                   |  |          | 
|           |  | Unaudited Condensed Consolidated Statement of
                    Changes in Partners’ Capital for the nine-month period ended September
                    30, 2007                             |  | 3        | 
|           |  |                                                                                                                                                                                                   |  |          | 
|           |  | Unaudited Condensed Consolidated Statements of
                    Cash Flows for the nine-month periods ended September 30, 2007 and
                    2006                                    |  | 4        | 
|           |  |                                                                                                                                                                                                   |  |          | 
|           |  | Notes to Unaudited Condensed Consolidated
                    Financial Statements                                                                                                                |  | 5        | 
|           |  |                                                                                                                                                                                                   |  |          | 
|Item 2.    |  | Management’s Discussion and Analysis of
                    Financial Condition and Results of Operations                                                                                         |  | 21       | 
|           |  |                                                                                                                                                                                                   |  |          | 
|Item 3.    |  | Quantitative and Qualitative Disclosures About
                    Market Risk                                                                                                                    |  | 36       | 
|           |  |                                                                                                                                                                                                   |  |          | 
|Item 4.    |  | Controls and
                    Procedures                                                                                                                                                       |  | 38       | 
|          
|           |  | PART II—OTHER
                    INFORMATION                                                                                                                                                     |  |          | 
|          
|Item 1.    |  | Legal
                    Proceedings                                                                                                                                                             |  | 39       | 
|           |  |                                                                                                                                                                                                   |  |          | 
|Item 1A.   |  | Risk Factors                                                                                                                                                                                      |  | 39       | 
|           |  |                                                                                                                                                                                                   |  |          | 
|Item 2.    |  | Unregistered Sales of Equity Securities and
                    Use of Proceeds                                                                                                                   |  | 41       | 
|           |  |                                                                                                                                                                                                   |  |          | 
|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                                                                                                                                                                                          |  | 42       | 
|           |  |                                                                                                                                                                                                   |  |          | 
|SIGNATURES |  | 43                                                                                                                                                                                                | 

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.

---



PART I—FINANCIAL
        INFORMATION

|                            |                     
|--------------------------- | --------------------
|ITEM
                    1. | Financial Statements

U.S. Shipping Partners L.P.
        Unaudited Condensed Consolidated Balance Sheets
        September 30, 2007 and December 31, 2006
        (in thousands)

|                                                                            |  |                                        |         |                                       |   |         |  
|--------------------------------------------------------------------------- |  | -------------------------------------- | ------- | ------------------------------------- | - | ------- | -
|                                                                            |  | September 30,
                    2007 |         | December 31,
                    2006 |  
|                                                                            |  |                                        |         |                                       |  
|                                                                           
|Assets                                                                      |  |                                        |         |                                       |   |         |  
|Current
                    assets                                          |  |                                        |         |                                       |   |         |  
|Cash and equivalents                                                        |  | $                                      | 15,248  |                                       | $ | 2,686   |  
|Current portion of restricted cash and equivalents                          |  |                                        | 125,598 |                                       |   | 80,588  |  
|Accounts receivable, net                                                    |  |                                        | 11,499  |                                       |   | 10,520  |  
|Prepaid expenses and other current assets                                   |  |                                        | 8,744   |                                       |   | 5,604   |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Total current assets                                                        |  |                                        | 161,089 |                                       |   | 99,398  |  
|Restricted
                    cash and equivalents, net of current portion |  |                                        | 29,587  |                                       |   | 130,359 |  
|Vessels and
                    equipment, net                              |  |                                        | 437,763 |                                       |   | 349,897 |  
|Deferred
                    financing costs, net                           |  |                                        | 20,118  |                                       |   | 23,098  |  
|Other
                    assets                                            |  |                                        | 5,043   |                                       |   | 2,672   |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Total assets                                                                |  | $                                      | 653,600 |                                       | $ | 605,424 |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Liabilities and Partners’ Capital                                           |  |                                        |         |                                       |   |         |  
|Current
                    liabilities                                     |  |                                        |         |                                       |   |         |  
|Current portion of long-term debt                                           |  | $                                      | 3,100   |                                       | $ | 2,560   |  
|Accounts payable                                                            |  |                                        | 10,641  |                                       |   | 11,677  |  
|Due to affiliates                                                           |  |                                        | 4,023   |                                       |   | 1,840   |  
|Deferred revenue                                                            |  |                                        | —       |                                       |   | 1,178   |  
|Accrued expenses and other liabilities                                      |  |                                        | 21,215  |                                       |   | 18,402  |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Total current liabilities                                                   |  |                                        | 38,979  |                                       |   | 35,657  |  
|Long-term
                    debt, net of current portion                  |  |                                        | 434,096 |                                       |   | 368,482 |  
|Advances
                    from Hess, net                                 |  |                                        | —       |                                       |   | 11,866  |  
|Deferred
                    income taxes                                   |  |                                        | 2,124   |                                       |   | 2,681   |  
|Other
                    liabilities                                       |  |                                        | 4,546   |                                       |   | 2,080   |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Total liabilities                                                           |  |                                        | 479,745 |                                       |   | 420,766 |  
|                                                                            |  |                                        |         |                                       |   |         |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Minority
                    interest in Joint Venture                      |  |                                        | 27,382  |                                       |   | 17,581  |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Commitments
                    and contingencies (Note 15)                 |  |                                        |         |                                       |   |         |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Partners’ Capital                                                           |  |                                        |         |                                       |   |         |  
|Partners’ capital                                                           |  |                                        | 148,960 |                                       |   | 167,823 |  
|Accumulated
                    other comprehensive loss                    |  |                                        | (2,487  | )                                     |   | (746    | )
|                                                                            |  |                                        |         |                                       |   |         |  
|Total partners’ capital                                                     |  |                                        | 146,473 |                                       |   | 167,077 |  
|                                                                            |  |                                        |         |                                       |   |         |  
|Total liabilities and partners’ capital                                     |  | $                                      | 653,600 |                                       | $ | 605,424 |  
|                                                                            |  |                                        |         |                                       |   |         |  

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

1

---



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

|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|--------------------------------------------------------------------------- |  | ------------------------------------------------------------ | ------ | ----------------------------------------------------------- | - | ------ | - | ---- | ------- | - | - | ------- | -
|                                                                            |  | For the Three Months Ended
                    September 30, |        | For the Nine Months Ended
                    September 30, |  
|                                                                            |  |                                                              |        |                                                             |  
|                                                                            |  | 2007                                                         |        | 2006                                                        |   | 2007   |   | 2006 |        
|                                                                           
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |        
|Revenues                                                                    |  | $                                                            | 45,559 |                                                             | $ | 38,503 |   | $    | 133,262 |   | $ | 113,341 |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Operating expenses                                                          |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Vessel
                    operating expenses                               |  |                                                              | 16,762 |                                                             |   | 16,501 |   |      | 49,087  |   |   | 44,461  |  
|Voyage
                    expenses                                         |  |                                                              | 11,360 |                                                             |   | 5,962  |   |      | 27,509  |   |   | 21,153  |  
|General and
                    administrative expenses                     |  |                                                              | 3,687  |                                                             |   | 3,722  |   |      | 11,693  |   |   | 9,724   |  
|Depreciation and amortization                                               |  |                                                              | 9,831  |                                                             |   | 8,185  |   |      | 27,933  |   |   | 23,034  |  
|Other
                    expense (income)                                  |  |                                                              | —      |                                                             |   | —      |   |      | (3,486  | ) |   | —       |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Total operating expenses, net                                               |  |                                                              | 41,640 |                                                             |   | 34,370 |   |      | 112,736 |   |   | 98,372  |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Operating income                                                            |  |                                                              | 3,919  |                                                             |   | 4,133  |   |      | 20,526  |   |   | 14,969  |  
|Interest
                    expense                                        |  |                                                              | 8,848  |                                                             |   | 5,650  |   |      | 22,420  |   |   | 9,061   |  
|Interest
                    income                                         |  |                                                              | (2,471 | )                                                           |   | (2,046 | ) |      | (7,718  | ) |   | (2,337  | )
|Loss on
                    debt extinguishment                             |  |                                                              | —      |                                                             |   | 2,451  |   |      | —       |   |   | 2,451   |  
|Loss (gain)
                    on derivative financial instruments         |  |                                                              | 235    |                                                             |   | (1,913 | ) |      | (669    | ) |   | (1,913  | )
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|(Loss) income before income taxes and minority
                    interest |  |                                                              | (2,693 | )                                                           |   | (9     | ) |      | 6,493   |   |   | 7,707   |  
|(Benefit)
                    provision for income taxes                    |  |                                                              | (364   | )                                                           |   | 653    |   |      | 258     |   |   | 1,208   |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|(Loss) income before minority interest                                      |  |                                                              | (2,329 | )                                                           |   | (662   | ) |      | 6,235   |   |   | 6,499   |  
|Minority
                    interest in Joint Venture loss (income)        |  |                                                              | 351    |                                                             |   | 301    |   |      | (56     | ) |   | 301     |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Net
                    (loss) income                                       |  |                                                              | (1,978 | )                                                           |   | (361   | ) |      | 6,179   |   |   | 6,800   |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Other
                    comprehensive income (loss)                       |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Fair market
                    value adjustment for derivatives            |  |                                                              | (5,422 | )                                                           |   | (5,028 | ) |      | (1,741  | ) |   | (3,404  | )
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Comprehensive (loss) income                                                 |  | $                                                            | (7,400 | )                                                           | $ | (5,389 | ) | $    | 4,438   |   | $ | 3,396   |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|                                                                            |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|General
                    partner’s interest in net (loss) income         |  | $                                                            | (40    | )                                                           | $ | (7     | ) | $    | 124     |   | $ | 136     |  
|                                                                           
|Limited
                    partners’ interest in:                          |  |                                                              |        |                                                             |   |        |   |      |         |   |   |         |  
|Net (loss) income                                                           |  | $                                                            | (1,938 | )                                                           | $ | (354   | ) | $    | 6,055   |   | $ | 6,664   |  
|Net (loss) income per unit - basic                                          |  | $                                                            | (0.11  | )                                                           | $ | (0.02  | ) | $    | 0.33    |   | $ | 0.45    |  
|Net (loss) income per unit - diluted                                        |  | $                                                            | (0.11  | )                                                           | $ | (0.02  | ) | $    | 0.33    |   | $ | 0.45    |  
|Weighted average units outstanding - basic                                  |  |                                                              | 18,234 |                                                             |   | 16,450 |   |      | 18,234  |   |   | 14,693  |  
|Weighted average units outstanding - diluted                                |  |                                                              | 18,234 |                                                             |   | 16,450 |   |      | 18,235  |   |   | 14,693  |  

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

2

---



U.S. Shipping Partners L.P.
        Unaudited Condensed Consolidated Statement of Changes in Partners’ Capital
        Nine Months Ended September 30, 2007
        (in thousands)

|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|----------------------------------------------------------------- |  | ----------------- | ------ | ------- | - | ------------ | - | ----------- | ------ | ------ | - | ------------- | - | ------- | ----- | ------------ | - | ------- | - | ----- | ----- | - | - | ---- | - | - | ------ | - | - | ------- | -
|                                                                  |  | Partners’ Capital |        |         |   |              |   |             |       
|                                                                  |  |                   |        |         |   |              |   |             |       
|                                                                  |  | Limited Partners  |        |         |   |              |   | Accumulated |        |        |  
|                                                                  |  |                   |        |         |   | Deferred     |   | Other       |        |        |  
|                                                                  |  | Common            |        | Class B |   | Subordinated |   | General     |        | Equity |   | Comprehensive |   |         |      
|                                                                  |  | Units             |        | $       |   | Units        |   | $           |        | Units  |   | $             |   | Partner |       | Compensation |   | Loss    |   | Total |      
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |      
|Balance
                    at December 31, 2006                  |  |                   | 8,210  |         | $ | 126,853      |   |             | 3,123  |        | $ | 48,181        |   |         | 6,900 |              | $ | (8,301  | ) | $     | 1,090 |   | $ | —    |   | $ | (746   | ) | $ | 167,077 |  
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|Conversion
                    of Class B Units into Common Units |  |                   | 3,123  |         |   | 48,181       |   |             | (3,123 | )      |   | (48,181       | ) |         | —     |              |   | —       |   |       | —     |   |   | —    |   |   | —      |   |   | —       |  
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|Restricted
                    Units                              |  |                   | 8      |         |   | 151          |   |             | —      |        |   | —             |   |         | —     |              |   | —       |   |       | —     |   |   | (151 | ) |   | —      |   |   | —       |  
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|Net
                    income                                    |  |                   | —      |         |   | 3,764        |   |             | —      |        |   | —             |   |         | —     |              |   | 2,292   |   |       | 123   |   |   | —    |   |   | —      |   |   | 6,179   |  
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|Amortization of deferred equity compensation                      |  |                   | —      |         |   | —            |   |             | —      |        |   | —             |   |         | —     |              |   | —       |   |       | —     |   |   | 74   |   |   | —      |   |   | 74      |  
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|Fair market
                    value adjustment for derivatives  |  |                   | —      |         |   | —            |   |             | —      |        |   | —             |   |         | —     |              |   | —       |   |       | —     |   |   | —    |   |   | (1,741 | ) |   | (1,741  | )
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|Cash
                    distributions                            |  |                   | —      |         |   | (15,298      | ) |             | —      |        |   | —             |   |         | —     |              |   | (9,315  | ) |       | (503  | ) |   | —    |   |   | —      |   |   | (25,116 | )
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  
|Balance
                    at September 30, 2007                 |  |                   | 11,341 |         | $ | 163,651      |   |             | —      |        | $ | —             |   |         | 6,900 |              | $ | (15,324 | ) | $     | 710   |   | $ | (77  | ) | $ | (2,487 | ) | $ | 146,473 |  
|                                                                  |  |                   |        |         |   |              |   |             |        |        |   |               |   |         |       |              |   |         |   |       |       |   |   |      |   |   |        |   |   |         |  

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

3

---



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

|                                                                                                                          |  |                                                             |          |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------- | -------- | ---- | - | -------- | -
|                                                                                                                          |  | For the Nine Months Ended
                    September 30, |         
|                                                                                                                          |  |                                                             |         
|                                                                                                                          |  | 2007                                                        |          | 2006 |  
|                                                                                                                          |  |                                                             |          |      |  
|Cash
                    flows from operating activities                                                                  |  |                                                             |          |      |   |          |  
|Net
                    income                                                                                            |  | $                                                           | 6,179    |      | $ | 6,800    |  
|Adjustments
                    to reconcile net income to net cash provided by operating activities                      |  |                                                             |          |      |   |          |  
|Depreciation of vessels and equipment, and amortization of
                    drydock costs and deferred financing costs |  |                                                             | 29,188   |      |   | 23,801   |  
|Provision for accounts receivable                                                                                         |  |                                                             | 479      |      |   | 45       |  
|Deferred income taxes                                                                                                     |  |                                                             | (552     | )    |   | (597     | )
|Equity compensation                                                                                                       |  |                                                             | 74       |      |   | —        |  
|Minority interest in Joint Venture income (loss)                                                                          |  |                                                             | 56       |      |   | (301     | )
|Gain on derivative financial instruments                                                                                  |  |                                                             | (669     | )    |   | (1,913   | )
|Capitalized drydock costs                                                                                                 |  |                                                             | (9,696   | )    |   | (25,373  | )
|Loss on debt extinguishment                                                                                               |  |                                                             | —        |      |   | 2,451    |  
|Changes in assets and liabilities:                                                                                        |  |                                                             |          |      |   |          |  
|Accounts receivable                                                                                                       |  |                                                             | (2,491   | )    |   | (70      | )
|Prepaid expenses and other current assets                                                                                 |  |                                                             | (3,830   | )    |   | (1,348   | )
|Other assets                                                                                                              |  |                                                             | (95      | )    |   | 1,399    |  
|Accounts payable                                                                                                          |  |                                                             | 1,466    |      |   | 7,797    |  
|Deferred revenue                                                                                                          |  |                                                             | (1,178   | )    |   | 2,372    |  
|Accrued expenses and other liabilities                                                                                    |  |                                                             | 94       |      |   | 6,398    |  
|                                                                                                                          |  |                                                             |          |      |   |          |  
|Net cash provided by operating activities                                                                                 |  |                                                             | 19,025   |      |   | 21,461   |  
|                                                                                                                          |  |                                                             |          |      |   |          |  
|                                                                                                                         
|Cash
                    flows from investing activities                                                                  |  |                                                             |          |      |   |          |  
|Change in
                    restricted cash and equivalents, net                                                        |  |                                                             | 55,762   |      |   | (226,909 | )
|Cash
                    received upon settlement of derivative financial instruments                                     |  |                                                             | 173      |      |   | —        |  
|Payments to
                    Hess, net                                                                                 |  |                                                             | (447     | )    |   | (852     | )
|Purchase of
                    interest rate cap                                                                         |  |                                                             | (1,924   | )    |   | —        |  
|Construction of vessels and equipment                                                                                     |  |                                                             | (110,652 | )    |   | (78,585  | )
|Proceeds
                    from Senesco settlement                                                                      |  |                                                             | —        |      |   | 21,000   |  
|Purchase of
                    office furniture, equipment and other                                                     |  |                                                             | —        |      |   | (317     | )
|                                                                                                                          |  |                                                             |          |      |   |          |  
|Net cash used in investing activities                                                                                     |  |                                                             | (57,088  | )    |   | (285,663 | )
|                                                                                                                          |  |                                                             |          |      |   |          |  
|                                                                                                                         
|Cash
                    flows from financing activities                                                                  |  |                                                             |          |      |   |          |  
|Proceeds
                    from borrowings                                                                              |  |                                                             | 54,000   |      |   | —        |  
|Proceeds
                    from Joint Venture revolver borrowings                                                       |  |                                                             | 14,318   |      |   | 13,866   |  
|Contribution by minority interest equity investors in Joint
                    Venture                                   |  |                                                             | 9,745    |      |   | 27,574   |  
|Deferred
                    financing costs                                                                              |  |                                                             | (158     | )    |   | (24,546  | )
|Repayment
                    of debt                                                                                     |  |                                                             | (2,164   | )    |   | (128,662 | )
|Proceeds
                    from issuance of debt                                                                        |  |                                                             | —        |      |   | 350,000  |  
|Gross
                    proceeds from issuance of common units                                                          |  |                                                             | —        |      |   | 79,084   |  
|Proceeds
                    from revolving borrowings                                                                    |  |                                                             | —        |      |   | 25,000   |  
|Repayment
                    of revolving borrowings                                                                     |  |                                                             | —        |      |   | (25,000  | )
|Joint
                    Venture equity offering expenses                                                                |  |                                                             | —        |      |   | (14,077  | )
|Partnership
                    equity offering expenses                                                                  |  |                                                             | —        |      |   | (2,785   | )
|Proceeds
                    from hedge termination                                                                       |  |                                                             | —        |      |   | 1,913    |  
|Distributions to partners/members                                                                                         |  |                                                             | (25,116  | )    |   | (21,046  | )
|                                                                                                                          |  |                                                             |          |      |   |          |  
|Net cash provided by financing activities                                                                                 |  |                                                             | 50,625   |      |   | 281,321  |  
|                                                                                                                          |  |                                                             |          |      |   |          |  
|                                                                                                                         
|Net
                    increase in cash and cash equivalents                                                             |  |                                                             | 12,562   |      |   | 17,119   |  
|Cash and
                    cash equivalents at beginning of period                                                      |  |                                                             | 2,686    |      |   | 10,000   |  
|                                                                                                                          |  |                                                             |          |      |   |          |  
|Cash and
                    cash equivalents at end of period                                                            |  | $                                                           | 15,248   |      | $ | 27,119   |  
|                                                                                                                          |  |                                                             |          |      |   |          |  

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

4

---



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

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

U.S. Shipping
        Partners L.P. (the “Partnership”) owns and operates six integrated tug barge
        units (“ITBs”), three chemical product, or parcel, tankers (“Parcel
        Tankers”), one product tanker (“Houston”) and one articulated tug barge
        (“ATB”). Additionally, the Partnership has contracted to construct four
        additional ATBs. The Partnership’s first ATB, the pusher tug Freeport and the
        parcel barge Chemical Transporter (together, the “ATB Freeport”),
        was delivered in June 2007 and entered service in July 2007. The four remaining ATBs are
        scheduled for delivery in August 2008, November 2008, August 2009 and August 2010, although
        the Partnership has the option to cancel the last ATB prior to January 15, 2008.

The Partnership
        is engaged in transportation services between ports in the United States, principally for
        refined petroleum products and petrochemical and commodity chemical products. The vessels
        operate under the regulatory provisions of the Jones Act.

The Partnership,
        through its subsidiary USS Product Carriers LLC (“Product Carriers”), entered
        into a contract with the National Steel and Shipbuilding Company (“NASSCO”), a
        subsidiary of General Dynamics Corporation (“General Dynamics”), for the
        construction of nine 49,000 deadweight tons (“dwt”) double-hulled tankers.
        These tankers will modernize the fleet and expand the Partnership’s ability to serve
        the refined petroleum products market, currently served predominantly by the
        Partnership’s ITBs and the Houston. The ITBs are single hulled vessels, and
        are subject to phase-out requirements of the Oil Pollution Act of 1990 (“OPA
        90”) over the next seven years. General Dynamics provided a performance guarantee to
        Product Carriers in respect of the obligations of NASSCO under the construction contract.
        NASSCO is scheduled to deliver the first tanker in the first quarter of 2009, with
        subsequent tankers delivered every four to eight months. On August 7, 2006, Product
        Carriers entered into a joint venture, USS Products Investor LLC (the “Joint
        Venture”), to finance the construction of the first five tankers. The Partnership,
        which manages the Joint Venture, owns a 40% interest in the Joint Venture and third parties
        own the remaining 60% interest. However, due to the Partnership’s control of the
        Joint Venture, as well as other aspects of the joint venture agreement, the financial
        statements of the Joint Venture are consolidated with the Partnership’s for financial
        reporting purposes. The Partnership presents in its consolidated financial statements the
        debt of the Joint Venture, but the Partnership has no obligation for the liabilities of the
        Joint Venture in excess of its $70,000 capital commitment, of which approximately $25,929
        has already been made. The portion of the net income or loss of the Joint Venture
        attributable to the 60% owners of the Joint Venture is set forth under the caption
        “Minority interest in Joint Venture loss (income)” on the Unaudited Condensed
        Consolidated Statements of Operations and Comprehensive Income.

The
        Partnership’s general partner holds a 2% general partner interest and certain
        incentive distribution rights in the Partnership. Incentive distribution rights represent
        the right to receive an increasing percentage of cash distributions after the minimum
        quarterly distribution, any cumulative arrearages on common units, and certain target
        distribution levels have been achieved. The Partnership is required to distribute all of
        its available cash from basic surplus, as defined in the Partnership agreement. The target
        distribution levels entitle the general partner to receive 15% of quarterly cash
        distributions in excess of $0.50 per unit until all unitholders have received $0.575 per
        unit, 25% of quarterly cash distributions in excess of $0.575 per unit until all
        unitholders have received $0.70 per unit, and 50% of quarterly cash distributions in excess
        of $0.70 per unit.

In the opinion
        of management, these financial statements reflect all adjustments necessary, consisting of
        normal recurring entries, for a fair statement of the financial results of such interim
        periods. The results of operations for interim periods are not necessarily indicative of
        the results of operations to be expected for a full year. 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, 2006
        (the “Form 10-K”). The December 31, 2006 condensed consolidated balance sheet
        data was derived from audited financial statements, but does not include all disclosures
        required by accounting principles generally accepted in the United States of
        America.

Certain prior
        period amounts have been reclassified to conform with current reporting.

|   |                                                                     
|-- | --------------------------------------------------------------------
|2. | Adoption of New Accounting Policy –
                    Income Taxes

As of January 1,
        2007, the Partnership adopted the provisions of Financial Accounting Standards Board
        (“FASB”) Interpretation Number (“FIN”) 48, “Accounting for
        Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” and
        changed its policy related to the accounting for income tax contingencies.

5

---



The Partnership
        continues to account for income tax contingencies using a benefit recognition model.
        Beginning January 1, 2007, if the Partnership considers that a tax position is ‘more
        likely than not’ of being sustained upon audit, based solely on the technical merits
        of the position, it recognizes the benefit. The Partnership measures the benefit by
        determining the amount that is greater than 50% likely of being realized upon settlement,
        presuming that the tax position is examined by the appropriate taxing authority that has
        full knowledge of all relevant information. For any tax position where the likelihood of
        realizing the benefit is less than 50%, no tax benefit is recorded.

Under the
        benefit recognition model, if the Partnership’s initial assessment fails to result in
        the recognition of a tax benefit, it regularly monitors its position and subsequently
        recognizes the tax benefit if there are changes in tax law or relevant technical
        authorities that sufficiently raise the likelihood of prevailing on the technical merits of
        the position to more likely than not, if the statute of limitations expires, or if there is
        a completion of an audit resulting in a settlement of that tax year with the appropriate
        agency.

Uncertain tax
        positions, represented by liabilities on the Partnership’s balance sheet, are now
        classified as current only when it expects to pay cash within the next 12 months. Interest
        and penalties, if any, continue to be recorded as a component of the Provision for Income
        Taxes and are classified on the balance sheet with the related tax liability.

Historically,
        the Partnership’s policy had been to account for income tax contingencies based on
        whether it determined its tax position to be ‘probable’ under current tax law
        of not being sustained, as well as an analysis of potential outcomes under a given set of
        facts and circumstances. In addition, the Partnership previously considered all probable
        tax contingencies as current liabilities.

As a result of
        the implementation of FIN 48, the Partnership recognized no material adjustment in the
        liability for unrecognized income tax benefits. At the adoption date of January 1, 2007,
        the Partnership had $391 of unrecognized tax benefits, all of which would affect its
        effective tax rate if recognized. At September 30, 2007, the Partnership had $668 of
        unrecognized tax benefits. At September 30, 2007 and January 1, 2007, the Partnership had
        approximately $82 and $42, respectively, of accrued interest and penalties related to
        uncertain tax positions. The tax years 2002-2006 remain open to examination by the major
        taxing jurisdictions to which the Partnership is subject.

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

In September
        2006, the FASB issued FASB Statement No. 157, “Fair Value Measurement,”
        (“FAS No. 157”) effective for fiscal years beginning after November 15, 2007.
        FAS No. 157 defines fair value, establishes a framework for measuring fair value and
        expands disclosures about fair value measurements. This statement does not require any new
        fair value measurements, but simplifies and codifies related guidance within generally
        accepted accounting principles. FAS No. 157 applies under other accounting pronouncements
        that require or permit fair value measurements. The Partnership’s financial
        statements require the use of various fair value measurements and the Partnership is
        currently reviewing the impact of this pronouncement upon its adoption.

In February
        2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial
        Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,”
        (“FAS No. 159”) effective as of the beginning of fiscal years beginning after
        November 15, 2007. FAS No. 159 permits entities to choose to measure many financial
        instruments and certain other items at fair value at specified election dates. A business
        entity shall report unrealized gains and losses on items for which the fair value option
        has been elected in earnings at each subsequent reporting date. Under FAS No. 159 the fair
        value option:

| |    |                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | May be applied instrument by instrument, with
                    a few exceptions, such as investments otherwise accounted for by the equity
                    method.
| |    |                                                                                                                                                                          
| | 2. | Is irrevocable (unless a new election date
                    occurs).                                                                                                  
| |    |                                                                                                                                                                          
| | 3. | Is applied only to entire instruments and not
                    to portions of instruments.                                                                            

The Partnership
        is currently reviewing the impact of this pronouncement upon its adoption.

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

Basic net income
        per unit is determined by dividing net income, after deducting the amount of net income
        allocated to the general partner’s interest, by the weighted average number of units
        outstanding during the period. Diluted net income per unit is calculated in the same manner
        as net income per unit, except that the weighted average number of outstanding units is
        increased to include the dilutive effect of outstanding unit options or phantom
        units.

6

---



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

|                                                                                        |  |                                                                                  |        |                                                             |  |        |  |      |        |  |  |        |  | 
|--------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- | ------ | ----------------------------------------------------------- |  | ------ |  | ---- | ------ |  |  | ------ |  | 
|                                                                                        |  | For the Three Months
                    Ended
                    September 30, |        | For the Nine Months Ended
                    September 30, |  |       
|                                                                                        |  |                                                                                  |        |                                                             |  |       
|                                                                                        |  | 2007                                                                             |        | 2006                                                        |  | 2007   |  | 2006 |        | 
|                                                                                        |  |                                                                                  |        |                                                             |  |        |  |      |        | 
|Weighted average units outstanding for basic net
                    income per unit    |  |                                                                                  | 18,234 |                                                             |  | 16,450 |  |      | 18,234 |  |  | 14,693 |  | 
|                                                                                        |  |                                                                                  |        |                                                             |  |        |  |      |        |  |  |        |  | 
|Dilutive effect of restricted units                                                     |  |                                                                                  | —      |                                                             |  | —      |  |      | 1      |  |  | —      |  | 
|                                                                                        |  |                                                                                  |        |                                                             |  |        |  |      |        |  |  |        |  | 
|Weighted average units outstanding for dilutive
                    net income per unit |  |                                                                                  | 18,234 |                                                             |  | 16,450 |  |      | 18,235 |  |  | 14,693 |  | 
|                                                                                        |  |                                                                                  |        |                                                             |  |        |  |      |        |  |  |        |  | 

Excluded
        from the calculation of dilutive net income per unit for the three months ended September
        30, 2007 are 3,158 restricted units that, if included, would have an anti-dilutive
        effect.

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

On
        August 7, 2006, two escrow accounts were established as part of the Partnership’s
        debt and equity financings to fund the construction of three new ATBs (the “ATB
        Escrow”) and the Partnership’s remaining committed equity contributions to the
        Joint Venture (the “Joint Venture Escrow”). As of September 30, 2007 and
        December 31, 2006, the ATB Escrow balance was $111,114 and $160,379, respectively, and the
        Joint Venture Escrow balance was $44,071 and $50,568, respectively. Amounts the Partnership
        projects will be used to satisfy obligations due during the next twelve months are
        classified as current restricted cash and equivalents, with the remainder classified as
        noncurrent restricted cash and equivalents.

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

Vessels
        and equipment consist of the following:

| |                                                                                                 |  |                                        |         |                                       |   |         |  | 
| | ----------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------- | ------------------------------------- | - | ------- |  | 
| |                                                                                                 |  | September 30,
                    2007 |         | December 31,
                    2006 |   |        
| |                                                                                                 |  |                                        |         |                                       |   |        
| | Vessels                                                                                         |  | $                                      | 348,451 |                                       | $ | 257,688 |  | 
| | Office furniture, equipment and other                                                           |  |                                        | 448     |                                       |   | 448     |  | 
| |                                                                                                 |  |                                        |         |                                       |   |         |  | 
| |                                                                                                 |  |                                        | 348,899 |                                       |   | 258,136 |  | 
| | Less: Accumulated depreciation                                                                  |  |                                        | 100,791 |                                       |   | 83,339  |  | 
| |                                                                                                 |  |                                        |         |                                       |   |         |  | 
| |                                                                                                 |  |                                        | 248,108 |                                       |   | 174,797 |  | 
| | Construction-in-progress-ATB’s                                                                  |  |                                        | 82,234  |                                       |   | 101,908 |  | 
| | Construction-in-progress-tankers                                                                |  |                                        | 73,693  |                                       |   | 35,027  |  | 
| | Capitalized drydock expenditures, net of
                    amortization of $18,329 and $7,848 |  |                                        | 33,728  |                                       |   | 38,165  |  | 
| |                                                                                                 |  |                                        |         |                                       |   |         |  | 
| | Total vessels and equipment, net                                                                |  | $                                      | 437,763 |                                       | $ | 349,897 |  | 
| |                                                                                                 |  |                                        |         |                                       |   |         |  | 
| |                                                                                                 |  |                                        |         |                                       |   |         |  | 

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:
        ITBs and the Sea Venture to their mandatory retirement from the transport of
        petroleum products as required by OPA 90, between 2012 and 2014; 10 years for the
        Chemical Pioneer, the Charleston and the Houston and 30 years for the
        ATB Freeport, based on their estimated useful lives. 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.

7

---



At
        September 30, 2007, vessels include the ATB Freeport, which was placed in service in
        July 2007 at a total cost of $91,507 plus $7,824 of capitalized interest. At December 31,
        2006, costs associated with the construction of the ATB Freeport of $57,953, plus
        capitalized interest of $4,108, were included in Construction-in-Progress-ATBs.
        Additionally, the total cost of the ITBs purchased from Hess was reduced by $8,568 during
        the current period. This represents the net amount received pursuant to the Support
        Agreement (See Note 9 for a complete description of the Support Agreement).

The
        Partnership currently capitalizes expenditures incurred for drydocking and amortizes these
        expenditures over 60 months for the ITBs (which would be reduced to 30 months if the Partnership
        is not allowed to participate in the UWILD Program discussed below), 60 months for the ATB
        and 30 months for the parcel tankers and the Houston. Both domestic and
        international regulatory bodies require that the Partnership’s vessels be drydocked
        for major repair and maintenance at least twice every five years. To date, the
        Partnership’s 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 drydock. The Partnership was recently advised by the U.S. Coast Guard that U.S. flagged
        non-double hulled tank vessels that are over 15 years in age and trade internationally will
        not, consistent with International Maritime Organization regulations, be eligible to
        participate in the UWILD Program. However, the U.S. Coast Guard has advised the Partnership
        that it will consider for participation in the UWILD Program non-double hulled tank vessels
        that are over 15 years of age but only trade domestically. 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, which could
        adversely affect the Partnership’s business, financial condition and results of
        operations. This could also adversely impact the cash available to pay cash distributions
        and to pay interest on, and principal of, the Partnership’s indebtedness. Even if the
        U.S. Coast Guard allows the ITBs to continue in the UWILD Program, the Partnership will
        need to conduct an enhanced survey, which will result in the vessel being off-hire, and not
        earning revenue, for an additional seven days each time a survey is conducted. In addition,
        vessels may have to be drydocked in the event of accidents or other unforeseen damage. The
        Partnership’s recently constructed ATB Freeport and all of the proposed
        newbuild ATBs and product tankers qualify for the UWILD program.

Capitalized
        drydock expenditures also include expenditures for drydocks in progress. At September 30,
        2007, capitalized drydock expenditures include $5,701 for the Baltimore drydock and
        $622 for the Philadelphia drydock which were both in progress at September 30, 2007. The
        Baltimore drydock was scheduled to be completed in September 2007 at an estimated
        total cost of $5,800. However, due to damages sustained while in the shipyard after
        completing its drydocking during Hurricane Dean, the Baltimore did not return
        to service until October 2007. Costs to repair the Baltimore are substantially covered by
        insurance, with the exception of the insurance policy deductible of $125, which is the
        total loss recognized due to the damage sustained by the Baltimore for the three and
        nine months ended September 30, 2007. The Partnership does not carry off-hire insurance for
        the revenues lost while repairs are performed. The Partnership has recorded approximately
        $2,475 at September 30, 2007 as a receivable for the insurance proceeds based upon the estimated repair costs.
        The recognition of the insurance proceeds are deferred and then recognized in income as an offset to the
        repair costs as they are incurred. The Partnership has recognized an expense of $125 for
        its insurance policy deductible in the three-month period ended September 30, 2007. The
        Philadelphia entered drydock in September 2007 and is expected to be completed in
        December 2007 at an estimated cost of $5,800. There were no drydocks in progress at
        December 31, 2006. Capitalized drydock expenditures of $1,747 and $5,398 were accrued at
        September 30, 2007 and December 31, 2006, respectively.

Depreciation
        of vessels and equipment for the three-month periods ended September 30, 2007 and 2006 was
        $6,270 and $5,591, respectively. Amortization of drydocking expenditures was $3,562 and
        $2,594 for the three-month periods ended September 30, 2007 and 2006,
        respectively.

Depreciation
        of vessels and equipment for the nine-month periods ended September 30, 2007 and 2006 was
        $17,452 and $16,618, respectively. Amortization of drydocking expenditures was $10,481 and
        $6,416 for the nine-month periods ended September 30, 2007 and 2006,
        respectively.

At
        September 30, 2007 and December 31, 2006, “Construction-in-progress-ATBs”
        includes capitalized interest of $5,582 and $5,822, respectively, and accrued invoices of
        $2,181 and $5,104, respectively. At September 30, 2007 and December 31, 2006,
        “Construction-in-progress-tankers” of the Joint Venture includes capitalized
        interest of $8,945 and $2,984, respectively, and accrued invoices of $9,560 and $1,193,
        respectively.

“Construction-in-progress-ATBs”
        at September 30, 2007 also includes $5,613 (including $492 of capitalized interest) for the
        Partnership’s fifth ATB, which the Partnership may cancel at anytime before January
        15, 2008. In August, 2007, in consideration for the extension of the cancellation option
        for the barge portion, the Partnership agreed to an increase in the price of the fifth ATB,
        not to exceed $3,700, and an extension of the expected delivery date of the fifth ATB. The
        Partnership expects to purchase the fifth ATB, provided the prevailing economic and market
        conditions support the utilization and financing of the vessels, but, if the
        cancellation

8

---



option is exercised, the Partnership will
        forfeit all amounts previously paid for the barge portion of this ATB (which aggregate
        $1,195), and may not be able to recover deposits for owner-furnished equipment for this ATB
        unit (which aggregate $1,289). See Note 15,” Commitments and Contingencies” for
        a complete discussion of the ATB construction contract.

On
        October 25, 2007, Products Investor and NASSCO contractually accelerated the delivery dates
        for the first five tankers that NASSCO is constructing for Products Investor, the
        Partnership’s Joint Venture. The revised delivery schedule is for the first tanker to
        be delivered in the first quarter of 2009, the second tanker to be delivered in the fourth
        quarter of 2009, the third and fourth tankers to be delivered in 2010, and the fifth tanker
        to be delivered in 2011. NASSCO’s previous request to accelerate the delivery of
        tankers six through nine remains outstanding and Product Carriers and the Joint Venture
        have until January 2, 2008 to respond to this acceleration request. The contract amendment
        also amended the dates for both liquidated damages for late delivery and incentive for
        early delivery. If Product Carriers and the Joint Venture do not agree to the acceleration
        of delivery of the tankers, then NASSCO has the right to use their additional capacity to
        construct vessels for other third parties. However, the Partnership believes any such use
        of additional capacity should not affect the delivery dates of vessels six through
        nine.

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 identified any changes in
        circumstances indicating that the carrying value of any of the Partnership’s vessels
        is not fully recoverable.

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

Deferred
        financing costs include fees and costs incurred to obtain debt financings and are generally
        amortized using the effective interest method over the term of the loan. For revolving
        credit facilities, the straight-line method is utilized rather than the effective interest
        method due to the variability in balances of outstanding borrowings. Unamortized deferred
        financing costs are written-off when debt is retired before the maturity date. Effective
        June 29, 2007, the Partnership amended certain financial covenants in its senior credit
        facility, for which it paid an amendment fee of $158. This fee is being amortized over the
        remaining term of the loan. For the three and nine months ended September 30, 2007,
        amortization expense of deferred financing costs of the Partnership (excluding those of the
        Joint Venture) were $433 and $1,256, respectively, and are included in interest expense in
        the accompanying Unaudited Condensed Consolidated Statements of Operations and
        Comprehensive Income, compared to $338 and $767 for the three and nine months ended
        September 30, 2006, respectively. A portion of such 2007 and 2006 amortization of deferred
        financing costs was included in construction-in-progress-ATBs as part of the interest
        capitalized by the Partnership. For the three and nine months ended September 30, 2007,
        deferred financing costs of $634 and $1,882 respectively, were amortized and included in
        construction-in-progress-tankers as part of the interest capitalized by the Joint
        Venture.

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

Accrued
        expenses and other liabilities consisted of the following:

| |                         |  |                                        |        |                                       |   |        |  | 
| | ----------------------- |  | -------------------------------------- | ------ | ------------------------------------- | - | ------ |  | 
| |                         |  | September 30,
                    2007 |        | December 31,
                    2006 |   |       
| |                         |  |                                        |        |                                       |   |       
| | Construction of vessels |  | $                                      | 12,489 |                                       | $ | 5,100  |  | 
| | Interest                |  |                                        | 2,069  |                                       |   | 5,618  |  | 
| | Insurance claims        |  |                                        | 1,973  |                                       |   | 1,570  |  | 
| | Accrued fuel charges    |  |                                        | 514    |                                       |   | 2,008  |  | 
| | Other                   |  |                                        | 4,170  |                                       |   | 4,106  |  | 
| |                         |  |                                        |        |                                       |   |        |  | 
| |                         |  | $                                      | 21,215 |                                       | $ | 18,402 |  | 
| |                         |  |                                        |        |                                       |   |        |  | 

|   |                                                            
|-- | -----------------------------------------------------------
|9. | Amerada Hess (“Hess”) Support
                    Agreement

On September 13, 2002, the Partnership entered into an
        agreement (the “Support Agreement”) with Hess in which certain daily charter
        rates were agreed through September 13, 2007 and based upon which support payments would be
        made by Hess to the Partnership in respect of the ITBs. Under the terms of the Support
        Agreement, Hess agreed to pay the Partnership for the amount by which the
        Partnership’s negotiated third-party contract rates are less than the agreed charter
        rate. However, in the event that the charter rates the Partnership received on the ITBs
        were in excess of the Hess support rate, then the Partnership was obligated to pay such
        excess amounts to Hess until the Partnership had repaid Hess for all prior support payments
        made by Hess to the Partnership, and then the Partnership was obligated to share 50% of any
        additional excess amount with Hess. The differences resulting from these rates

9

---



were calculated on a monthly basis. The net
        amounts received or paid by the Partnership were considered contingent purchase price
        during the term of the Support Agreement. At the conclusion of the Support Agreement in
        September 2007, the net amount received was treated as a purchase price adjustment to the
        six ITBs acquired by the Partnership from Hess in September 2002.

The
        cumulative net amount that was recorded as a reduction in the purchase price of the six ITBs was
        $8,568 upon the expiration of the Support Agreement in September 2007. This amount is subject to final accounting/reconciliation by Hess and the
        Partnership. The Partnership had a receivable from Hess under the Support Agreement of $115
        at December 31, 2006 and liabilities due to Hess of $2,851 at September 30, 2007, which were
        paid in October 2007.

|    |     
|--- | ----
|10. | Debt

The
        Partnership’s outstanding debt consisted of the following:

| |                                                                                                                                                                                           |  |                                        |         |                                       |   |         |  | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ------- | ------------------------------------- | - | ------- |  | 
| |                                                                                                                                                                                           |  | September 30,
                    2007 |         | December 31,
                    2006 |   |        
| |                                                                                                                                                                                           |  |                                        |         |                                       |   |        
|
| | Third Amended and Restated Credit Facility - Term,
                    bearing interest at LIBOR plus 3.5% (8.7% at September 30, 2007 and 8.9% at
                    December 31, 2006) |  | $                                      | 306,573 |                                       | $ | 254,735 |  | 
| | 13% Senior Secured Notes due 2014                                                                                                                                                         |  |                                        | 100,000 |                                       |   | 100,000 |  | 
| | Revolving Notes Facility - Joint Venture, bearing
                    interest at LIBOR plus 4.5% (9.7% at September 30, 2007 and 9.9% December 31,
                    2006)             |  |                                        | 30,623  |                                       |   | 16,307  |  | 
| |                                                                                                                                                                                           |  |                                        |         |                                       |   |         |  | 
| | Total                                                                                                                                                                                     |  |                                        | 437,196 |                                       |   | 371,042 |  | 
| | Less: Current portion of long-term debt                                                                                                                                                   |  |                                        | 3,100   |                                       |   | 2,560   |  | 
| |                                                                                                                                                                                           |  |                                        |         |                                       |   |         |  | 
| | Long-term debt                                                                                                                                                                            |  | $                                      | 434,096 |                                       | $ | 368,482 |  | 
| |                                                                                                                                                                                           |  |                                        |         |                                       |   |         |  | 

At September
        30, 2007 the Partnership’s debt maturities were as follows:

| |                               |  |   |         |  | 
| | ----------------------------- |  | - | ------- |  | 
| | Year ended December 31,       |  |   |         |  | 
| |                               |  |   |         |  | 
| | 2007 (remaining three months) |  | $ | 775     |  | 
| | 2008                          |  |   | 3,100   |  | 
| | 2009                          |  |   | 3,100   |  | 
| | 2010                          |  |   | 3,100   |  | 
| | 2011                          |  |   | 33,723  |  | 
| | 2012                          |  |   | 293,398 |  | 
| | Thereafter                    |  |   | 100,000 |  | 
| |                               |  |   |         |  | 
| |                               |  | $ | 437,196 |  | 
| |                               |  |   |         |  | 

Capitalized
        interest for the three months ended September 30, 2007 and 2006 was $3,815 and $2,317,
        respectively. Capitalized interest for the nine months ended September 30, 2007 and 2006
        was $13,543 and $3,615, respectively.

Credit
        Facility Amendment

Effective
        June 29, 2007, the Partnership amended certain financial covenants in its senior credit
        facility to eliminate certain projected financial covenant compliance issues. The primary
        changes were to increase the amount of ATB Freeport construction expenditures
        excluded from the calculation of certain covenants and to increase the leverage ratio
        covenants for the fourth quarter of 2007 and each of the four quarters of 2008.

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

Partnership
        Hedging

In
        connection with the refinancing of its 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 credit facility to a fixed rate of
        8.9%. The fair value of this hedge was a loss of $3,168 at September 30, 2007 and a loss of
        $2,080 at December 31, 2006 and is reflected in other comprehensive income on the
        accompanying financial statements as this contract has been designated as a cash flow
        hedge.

10

---



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
        credit facility to a fixed rate of 8.4%. The fair value of this hedge was a loss of $628 at
        September 30, 2007 and a gain of $520 at December 31, 2006, and is reflected in other
        comprehensive income on the accompanying financial statements, as this contract has been
        designated as a cash flow hedge.

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. The fair market value of the
        foreign currency forward contracts at September 30, 2007 and December 31, 2006 was a gain
        of $1,177 and $814, respectively. The fair market value of the foreign currency forward
        contracts is included in other comprehensive income on the accompanying financial
        statements, as this contract has been designated as a cash flow hedge. The gain or loss on
        the foreign currency forward contracts will be recognized in earnings at the time that the
        underlying hedged items (i.e., the owner-furnished items) are recognized in earnings as a
        component of depreciation expense. However, in May 2007, a payment scheduled for
        owner-furnished items relative to the fifth ATB being constructed was deferred until
        December 2007, which was beyond the expiration date of the related foreign currency forward
        contract. As a result, the portion of the foreign currency contract designated as a cash
        flow hedge of this payment, totaling $173, was no longer effective. Accordingly, this
        amount is recorded as a gain on derivative financial instruments in the accompanying
        Unaudited Condensed Consolidated Statements of Operations and Comprehensive
        Income.

Joint
        Venture Hedging

On
        February 27, 2007, the Joint Venture purchased a $100,000 nine year interest rate cap
        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 its 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 FASB Statement No.
        133, “Accounting for Derivative Instruments and Hedging Activities,”
        (“SFAS No. 133”), as amended. The fair market value of the interest rate cap at
        September 30, 2007 was a receivable of $2,420 and is recorded in “Other Assets” on the
        Unaudited Condensed Consolidated Balance Sheets. A decrease in the fair value of the
        instrument of $235 for the three months ended September 30, 2007 is recorded as a loss, and
        an increase in the fair value of the instrument of $496 for the nine months ended September
        30, 2007 is recorded as a gain on derivative financial instruments in the accompanying
        Unaudited Condensed Consolidated Statements of Operations and Comprehensive
        Income.

|    |                  
|--- | -----------------
|12. | Partners’ Capital

Class
        B Conversion

On
        February 2, 2007, the Partnership held a special meeting of unitholders and a majority of
        unitholders voted in favor of automatically converting the Partnership’s 3,123,205
        class B units into 3,123,205 common units.

Distributions

On
        August 1, 2007, the Board of Directors of the general partner declared the
        Partnership’s regular cash distribution for the second quarter of 2007 of $0.45 per
        unit. The distribution was paid on all common, subordinated and general partner units on
        August 15, 2007 to all unitholders of record on August 10, 2007. The aggregate amount of
        the distribution was $8,372.

On
        May 3, 2007, the Board of Directors of the general partner declared the Partnership’s
        regular cash distribution for the first quarter of 2007 of $0.45 per unit. The distribution
        was paid on all common, subordinated and general partner units on May 15, 2007 to all
        unitholders of record on May 11, 2007. The aggregate amount of the distribution was
        $8,372.

11

---



On February 6,
        2007, the Board of Directors of the general partner declared the Partnership’s
        regular cash distribution for the fourth quarter of 2006 of $0.45 per unit. The
        distribution was paid on all common, subordinated and general partner units on February 15,
        2007 to all unitholders of record on February 12, 2007. The aggregate amount of the
        distribution was $8,372.

Restricted
        Units / Deferred Equity Compensation

On April 2,
        2007, the Partnership issued to each of the non-employee directors of its general partner,
        who are not employed by Sterling Investment Partners, 2,000 restricted common units under
        the Long-Term Incentive Plan for a total grant of 8,000 units. These restricted units vest
        on March 31, 2008, subject to earlier vesting in the event of a change in control, death,
        disability, retirement or resignation at the request of the Partnership. Each
        director’s right to receive distributions on the restricted units vested as to 500
        units on each of April 2, 2007, July 1, 2007 and October 1, 2007 and will vest as to the
        remaining 500 units on January 1, 2008. The value of the restricted stock as determined on
        the date of issuance was $151. This amount was recorded as deferred equity compensation and
        is being amortized over the vesting period of the units. At September 30, 2007, deferred
        equity compensation was $77.

|    |                    
|--- | -------------------
|13. | Contract Settlement

On February 9,
        2007, the Partnership and a major oil and chemical customer reached an agreement to
        terminate a Contract of Affreightment under which the customer was obligated to purchase
        services for the transport of minimum freight volumes through late 2007 from a
        manufacturing facility that it sold. The Partnership received $3,486 from the customer in
        exchange for releasing the customer from its future obligations under the Contract of
        Affreightment. The $3,486 is included in “Other Expense (Income)” on the
        Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income.
        Simultaneously, a new three year Contract of Affreightment at market rates with reduced
        volumes was agreed upon in principle with the same customer.

|    |                           
|--- | --------------------------
|14. | Related Party Transactions

Hess
        Support

Hess is one of
        the Partnership’s significant customers. Voyage revenues earned from charters with
        Hess (which do not include amounts received under the Support Agreement) for each of the
        three months ended September 30, 2007 and 2006 were $3,220. Voyage revenues earned from
        charters with Hess (which do not include amounts received under the Support Agreement) for
        the nine months ended September 30, 2007 and 2006 were $11,786 and $9,555, respectively.
        The Partnership had a payable to Hess under the Support Agreement of $2,851 at September
        30, 2007 and a receivable from Hess under the Support Agreement of $115 at December 31,
        2006. See Note 9. Amerada Hess (“Hess”) Support Agreement for further
        discussion regarding the Support Agreement.

General
        Partner

General and
        administrative expenses, including shore side employee expenses, 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 $13,743 and $11,726, respectively,
        for the three months ended September 30, 2007 and 2006. Reimbursable amounts expensed by
        the Partnership were $40,451 and $34,072, respectively, for the nine months ended September
        30, 2007 and 2006.

New York
        Office

On September 23,
        2005, the Partnership entered into a ten-year lease for office space for its New York City
        office. The Partnership subleases 75% of the leased space to certain companies affiliated
        with the Chairman and Chief Executive Officer of the Partnership. The affiliated companies
        pay their portion of the rent in advance of the Partnership making the rental payment. The
        Partnership has provided a letter of credit totaling $214 to secure final payments of the
        lease commitment. The Partnership has been reimbursed 75% of the cost of providing the
        letter of credit and has received a guaranty from its Chairman in the event of any default
        of the lease, including that which would require drawdown of the letter of credit. For the
        three months ended September 30, 2007 and 2006, the Partnership paid $104 and $99,
        respectively, in connection with the lease and received $78 and $74, respectively, from its
        related parties. For the nine months ended September, 2007 and 2006, the Partnership paid
        $343 and $165, respectively, in connection with the lease and received $257 and $123,
        respectively, from its related parties.

12

---



USS Product
        Manager LLC

USS Product
        Manager LLC (“Product Manager”), the Partnership’s wholly-owned
        subsidiary, manages the construction and operation of the tankers for the Joint Venture,
        for which it will receive the following, subject to certain specified
        limitations:

| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | an oversight fee of $1,000 per tanker,
                    payable ratably over the course of construction of such tanker;                                                                                                 
| | • | a management fee of $1,000 per year for each
                    completed tanker that is operated by the Joint Venture;                                                                                                   
| | • | a delivery fee of up to $750 per tanker,
                    depending on the delivery date and cost of construction; and                                                                                                  
| | • | a sale fee of up to $1,500 per tanker upon
                    its sale to the Partnership or a third party, depending on the price obtained
                    and whether a charter meeting specified terms is in place.

The management
        agreement between Product Manager and the Joint Venture has an initial term of 10 years,
        subject to early termination under certain circumstances. The obligations under the
        management agreement will be performed by employees of US Shipping General Partner LLC, the
        Partnership’s general partner. Certain members of the Partnership’s management
        are expected to devote significant time to the management and operation of the Joint
        Venture. For the three and nine months ended September 30, 2007, the Partnership recorded
        $119 and $180, respectively, in income related to this management agreement; however these
        amounts were eliminated in consolidation.

The
        Blackstone Group and Other Parties (the “Joint Venture
        Investors”)

As a result of
        the formation of the Joint Venture on August 7, 2006, the Partnership considers the Joint
        Venture Investors to be related parties. For the three and nine months ended September 30,
        2007, the Joint Venture paid interest on the Revolver totaling $1,572 and $4,026,
        respectively, to the Joint Venture Investors. For the three and nine months ended September
        30, 2006, the Joint Venture paid interest on the Revolver totaling $663 to the Joint
        Venture Investors.

|    |                              
|--- | -----------------------------
|15. | Commitments and Contingencies

Claims and
        Litigation

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.

ATB
        Commitments

In 2006, the
        Partnership entered into a contract with Manitowoc Marine Group (“MMG”) for the
        construction of four barges, each of which is specified to have a carrying capacity of
        approximately 156,000 barrels at 98% of capacity. However, the Partnership has the option
        to cancel the fourth barge prior to January 15, 2008 (the “Cancellation
        Option”). In connection with extending the Cancellation Option, the Partnership
        agreed to extend the delivery date to August 2010 (and later under certain circumstances)
        and to increase the cost of the vessel, depending on the final delivery date. If the
        delivery date is not extended past December 31, 2010, the maximum amount of additional cost
        (excluding certain price escalators) would be approximately $3,700. The Partnership
        estimates the total cost for this ATB will be approximately $71,500 (subject to
        modifications, changes in the cost of steel and the actual delivery date). If the
        Cancellation Option is exercised, the Partnership will forfeit all amounts previously paid
        for this barge (which aggregate $3,832), and may not be able to recover deposits for
        owner-furnished equipment for this ATB unit (which aggregate $1,195). Excluding any
        possible recoveries, the total charge to expense for cancelling this ATB unit would be
        $5,613. In 2006, the Partnership also entered into a contract for the construction of three
        tugs with Eastern Shipbuilding Group, Inc. (“Eastern”), which will be joined
        with the barges to complete the three new ATB units. The contract with Eastern also
        includes an option to construct and deliver an additional tug, which must be exercised by
        January 15, 2008. The total construction cost anticipated for the first three new ATB units
        is approximately $66,000 to $69,000 per unit (subject to modifications and changes in the
        cost of steel), in each case inclusive of owner furnished equipment, but exclusive of
        capitalized interest. The capitalized interest as of September 30, 2007 relating to this
        series of ATBs is $5,582. The Partnership expects that the first two of these ATB units
        will be completed in August 2008 and November 2008, respectively, and the second two of
        these ATB units to be completed in August 2009 and, if not cancelled, August 2010 (or later
        under certain circumstances). As of September 30, 2007, the Partnership has made payments
        totaling $76,653 related to these newbuilds. At September 30, 2007, the Partnership had in
        escrow approximately $111,114 plus $13,921 of funds drawn from the escrow account in
        anticipation of payments due in the fourth quarter of 2007. These amounts represent the
        Partnership’s expected cost to substantially complete construction of the first three
        ATBs.

13

---



Liquidity

The
        Partnership’s primary liquidity needs are to make scheduled debt and interest
        payments, to pay quarterly distributions, to fund general working capital requirements and
        to pay expansion and other maintenance capital expenditures. Expansion capital expenditures
        are primarily for the purchase or construction of vessels, including the ATB units and
        tankers currently under construction. Maintenance capital expenditures include drydocking
        expenditures and would include the cost of bringing vessels into compliance with OPA 90.
        Primary sources of funds for the Partnership’s needs will be cash flows from
        operations, borrowings under the amended and restated credit facility and other debt or
        equity financings.

The
        Partnership’s liquidity has been, and may continue to be, affected by several
        factors, some of which are outside the Partnership’s control, including:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Cost overruns on the construction of the
                    ATB Freeport of approximately $24,500 from the amount estimated at the
                    time of the August 2006 refinancing resulted in additional borrowings under the
                    Partnership’s credit facility, thereby reducing availability under the
                    credit facility to meet ongoing liquidity requirements, and increased interest
                    expense.                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | • | The potential for reduced operating margins
                    from the ITB fleet due to the expiration of the Hess Support Agreement in
                    September 2007, which provided the Partnership minimum rates on the ITBs, the increased
                    competition for long-term charters from newer vessels, possible lower rates in
                    the spot market due to an increasing supply of vessels, and higher operating
                    expenses of, and less demand for, the Partnership’s ITBs due to their
                    age.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | • | Increased vessel operating expenses due to
                    new collective bargaining agreements with the two maritime unions that cover
                    all of the Partnership’s seagoing personnel. The two agreements, which
                    follow agreements reached by other vessel operators in the industry, are
                    expected to increase vessel personnel expenses by approximately $3,000 in 2008
                    when compared to the levels under the expired contracts.                                                         

To the extent
        the foregoing or other factors negatively impact future operating results, the
        Partnership’s liquidity and available cash will be adversely affected.

Request for
        NASSCO Contract Acceleration

On October 25,
        2007, Products Investor and NASSCO contractually accelerated the delivery dates for the
        first five tankers that NASSCO is constructing for Products Investor, the
        Partnership’s Joint Venture. The revised delivery schedule is for the first tanker to
        be delivered in the first quarter of 2009, the second tanker to be delivered in the fourth
        quarter of 2009, the third and fourth tankers to be delivered in 2010, and the fifth tanker
        to be delivered in 2011. NASSCO’s previous request to accelerate the delivery of
        tankers six through nine remains outstanding and Product Carriers and the Joint Venture
        have until January 2, 2008 to respond to this acceleration request. The contract amendment
        also amended the dates for both liquidated damages for late delivery and incentive for
        early delivery. If Product Carriers and the Joint Venture do not agree to the acceleration
        of delivery of the tankers, then NASSCO has the right to use their additional capacity to
        construct vessels for third parties and to deliver the last four vessels they have agreed
        to construct for Product Carriers based upon the original contract terms. The Partnership
        believes any such use of additional capacity should not affect the delivery dates of
        vessels six through nine.

Union
        Collective Bargaining Agreements

The
        Partnership’s collective bargaining agreements with two maritime unions, the American
        Maritime Officers union, which covers the officers of the Partnership’s vessels, and
        the Seafarers’ International Union, which covers all of the other seagoing personnel,
        expired in the second quarter of 2007. In September 2007, the Partnership reached an
        agreement with the American Maritime Officers union. The agreement is retroactive to May 1,
        2007 and expires on April 30, 2010. A five year agreement with the Seafarers’
        International Union was reached in October 2007. The two agreements, which the Partnership
        believes are consistent with industry trends, provided for wage and benefit increases which aggregated
        approximately $1,000 for the nine months ended September 30, 2007. These are the only two
        collective bargaining agreements to which the Partnership is subject.

|    |                                                       
|--- | ------------------------------------------------------
|16. | 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. (“Parent”) and U.S. Shipping Finance Corp.
        (“Subsidiary Issuer” and together the Parent and Subsidiary Issuer constitute the
        “Issuers” of the Partnership’s $100,000 13% Senior Secured Notes due 2014
        (the “Notes”)), the Partnership’s subsidiary guarantors of such Notes and
        the Partnership’s subsidiary non-guarantors of such Notes.

14

---



The Subsidiary
        Issuer entity (U.S. Shipping Finance Corp.), which is a 100% owned finance subsidiary of
        the Parent, as well as the only non-guarantor subsidiaries (USS Products
        Investor LLC and USS Product Carriers LLC) commenced operations on August 7, 2006. In
        addition, all of the Partnership’s wholly-owned subsidiaries other than the
        non-guarantor subsidiaries identified above guarantee the $100,000 13% Senior Secured Notes
        due 2014 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.

U.S. Shipping Partners L.P.Unaudited Consolidating Balance Sheet
        As of September 30, 2007
        (in thousands)

|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|--------------------------------------------------------------------------- |  | -------- | ------- | --------------------------------------- | - | ------------------------------------------ | - | --------------------------------------------------------------------- | ------- | ----------- | - | ------ |  | - | -------- | - | - | ------- | -
|                                                                            |  | Parent * |         | Subsidiary
                    Issuer * |   | Guarantor
                    Subsidiaries |   | Non-
                    Guarantor
                    Subsidiaries** |         | Adjustments |   | Total  | 
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        | 
|Assets                                                                      |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Current assets                                                              |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Cash and equivalents                                                        |  | $        | —       |                                         | $ | —                                          |   | $                                                                     | 15,242  |             | $ | 6      |  | $ | —        |   | $ | 15,248  |  
|Current portion of restricted cash and equivalents                          |  |          | —       |                                         |   | —                                          |   |                                                                       | 125,598 |             |   | —      |  |   | —        |   |   | 125,598 |  
|Accounts receivable, net                                                    |  |          | —       |                                         |   | —                                          |   |                                                                       | 11,499  |             |   | —      |  |   | —        |   |   | 11,499  |  
|Prepaid expenses and other current assets                                   |  |          | —       |                                         |   | —                                          |   |                                                                       | 8,493   |             |   | 251    |  |   | —        |   |   | 8,744   |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total current assets                                                        |  |          | —       |                                         |   | —                                          |   |                                                                       | 160,832 |             |   | 257    |  |   | —        |   |   | 161,089 |  
|Investment
                    in subsidiaries, net                         |  |          | 242,907 |                                         |   | —                                          |   |                                                                       | —       |             |   | —      |  |   | (242,907 | ) |   | —       |  
|Intercompany receivable                                                     |  |          | 301,259 |                                         |   | 79,965                                     |   |                                                                       | —       |             |   | —      |  |   | (381,224 | ) |   | —       |  
|Restricted
                    cash and equivalents, net of current portion |  |          | —       |                                         |   | —                                          |   |                                                                       | 29,587  |             |   | —      |  |   | —        |   |   | 29,587  |  
|Vessels and
                    equipment, net                              |  |          | —       |                                         |   | —                                          |   |                                                                       | 364,070 |             |   | 73,693 |  |   | —        |   |   | 437,763 |  
|Deferred
                    financing costs, net                           |  |          | 10,052  |                                         |   | 4,266                                      |   |                                                                       | —       |             |   | 10,066 |  |   | (4,266   | ) |   | 20,118  |  
|Other
                    assets                                            |  |          | 2,623   |                                         |   | —                                          |   |                                                                       | —       |             |   | 2,420  |  |   | —        |   |   | 5,043   |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total assets                                                                |  | $        | 556,841 |                                         | $ | 84,231                                     |   | $                                                                     | 554,489 |             | $ | 86,436 |  | $ | (628,397 | ) | $ | 653,600 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Liabilities and Partners’ Capital                                           |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Current
                    liabilities                                     |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Current portion of long-term debt                                           |  | $        | 3,100   |                                         | $ | —                                          |   | $                                                                     | —       |             | $ | —      |  | $ | —        |   | $ | 3,100   |  
|Accounts payable                                                            |  |          | —       |                                         |   | —                                          |   |                                                                       | 10,641  |             |   | —      |  |   | —        |   |   | 10,641  |  
|Due to affiliates                                                           |  |          | —       |                                         |   | —                                          |   |                                                                       | 3,853   |             |   | 170    |  |   | —        |   |   | 4,023   |  
|Accrued expenses and other liabilities                                      |  |          | —       |                                         |   | —                                          |   |                                                                       | 11,034  |             |   | 10,181 |  |   | —        |   |   | 21,215  |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total current liabilities                                                   |  |          | 3,100   |                                         |   | —                                          |   |                                                                       | 25,528  |             |   | 10,351 |  |   | —        |   |   | 38,979  |  
|Intercompany payable                                                        |  |          | —       |                                         |   | —                                          |   |                                                                       | 301,259 |             |   | —      |  |   | (301,259 | ) |   | —       |  
|Long-term
                    debt, net of current portion                  |  |          | 403,472 |                                         |   | 100,000                                    |   |                                                                       | —       |             |   | 30,624 |  |   | (100,000 | ) |   | 434,096 |  
|Deferred
                    income taxes                                   |  |          | —       |                                         |   | —                                          |   |                                                                       | 2,124   |             |   | —      |  |   | —        |   |   | 2,124   |  
|Other
                    liabilities                                       |  |          | 3,796   |                                         |   | —                                          |   |                                                                       | 750     |             |   | —      |  |   | —        |   |   | 4,546   |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total liabilities                                                           |  |          | 410,368 |                                         |   | 100,000                                    |   |                                                                       | 329,661 |             |   | 40,975 |  |   | (401,259 | ) |   | 479,745 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Minority
                    interest in Joint Venture                      |  |          | —       |                                         |   | —                                          |   |                                                                       | —       |             |   | 27,382 |  |   | —        |   |   | 27,382  |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Commitments
                    and contingencies                           |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Partners’ Capital                                                           |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Partners’ capital                                                           |  |          | 148,960 |                                         |   | (15,769                                    | ) |                                                                       | 224,828 |             |   | 18,079 |  |   | (227,138 | ) |   | 148,960 |  
|Accumulated
                    other comprehensive loss                    |  |          | (2,487  | )                                       |   | —                                          |   |                                                                       | —       |             |   | —      |  |   | —        |   |   | (2,487  | )
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total partners’ capital                                                     |  |          | 146,473 |                                         |   | (15,769                                    | ) |                                                                       | 224,828 |             |   | 18,079 |  |   | (227,138 | ) |   | 146,473 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total liabilities and partners’ capital                                     |  | $        | 556,841 |                                         | $ | 84,231                                     |   | $                                                                     | 554,489 |             | $ | 86,436 |  | $ | (628,397 | ) | $ | 653,600 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  

* Both the Parent and the Subsidiary Issuer are
        co-issuers of $100,000 in 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.

15

---



U.S. Shipping Partners L.P.
        Unaudited Consolidating Balance Sheet
        As of December 31, 2006
        (in thousands)

|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|--------------------------------------------------------------------------- |  | -------- | ------- | --------------------------------------- | - | ------------------------------------------ | - | --------------------------------------------------------------------- | ------- | ----------- | - | ------ |  | - | -------- | - | - | ------- | -
|                                                                            |  | Parent * |         | Subsidiary
                    Issuer * |   | Guarantor
                    Subsidiaries |   | Non-
                    Guarantor
                    Subsidiaries** |         | Adjustments |   | Total  | 
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        | 
|Assets                                                                      |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Current assets                                                              |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Cash and equivalents                                                        |  | $        | —       |                                         | $ | —                                          |   | $                                                                     | 2,686   |             | $ | —      |  | $ | —        |   | $ | 2,686   |  
|Current portion of restricted cash and equivalents                          |  |          | —       |                                         |   | —                                          |   |                                                                       | 80,588  |             |   | —      |  |   | —        |   |   | 80,588  |  
|Accounts receivable, net                                                    |  |          | —       |                                         |   | —                                          |   |                                                                       | 10,520  |             |   | —      |  |   | —        |   |   | 10,520  |  
|Prepaid expenses and other current assets                                   |  |          | —       |                                         |   | —                                          |   |                                                                       | 5,410   |             |   | 194    |  |   | —        |   |   | 5,604   |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total current assets                                                        |  |          | —       |                                         |   | —                                          |   |                                                                       | 99,204  |             |   | 194    |  |   | —        |   |   | 99,398  |  
|Investment
                    in subsidiaries, net                         |  |          | 233,028 |                                         |   | —                                          |   |                                                                       | —       |             |   | —      |  |   | (233,028 | ) |   | —       |  
|Intercompany receivable                                                     |  |          | 278,379 |                                         |   | 89,715                                     |   |                                                                       | —       |             |   | —      |  |   | (368,094 | ) |   | —       |  
|Restricted
                    cash and equivalents, net of current portion |  |          | —       |                                         |   | —                                          |   |                                                                       | 130,359 |             |   | —      |  |   | —        |   |   | 130,359 |  
|Vessels and
                    equipment, net                              |  |          | —       |                                         |   | —                                          |   |                                                                       | 314,870 |             |   | 35,027 |  |   | —        |   |   | 349,897 |  
|Deferred
                    financing costs, net                           |  |          | 11,151  |                                         |   | 4,744                                      |   |                                                                       | —       |             |   | 11,947 |  |   | (4,744   | ) |   | 23,098  |  
|Other
                    assets                                            |  |          | 1,334   |                                         |   | —                                          |   |                                                                       | 1,338   |             |   | —      |  |   | —        |   |   | 2,672   |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total assets                                                                |  | $        | 523,892 |                                         | $ | 94,459                                     |   | $                                                                     | 545,771 |             | $ | 47,168 |  | $ | (605,866 | ) | $ | 605,424 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Liabilities and Partners’ Capital                                           |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Current liabilities                                                         |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Current portion of long-term debt                                           |  | $        | 2,560   |                                         | $ | —                                          |   | $                                                                     | —       |             | $ | —      |  | $ | —        |   | $ | 2,560   |  
|Accounts payable                                                            |  |          | —       |                                         |   | —                                          |   |                                                                       | 11,677  |             |   | —      |  |   | —        |   |   | 11,677  |  
|Due to affiliates                                                           |  |          | —       |                                         |   | —                                          |   |                                                                       | 1,604   |             |   | 236    |  |   | —        |   |   | 1,840   |  
|Deferred revenue                                                            |  |          | —       |                                         |   | —                                          |   |                                                                       | 1,178   |             |   | —      |  |   | —        |   |   | 1,178   |  
|Accrued expenses and other liabilities                                      |  |          | —       |                                         |   | —                                          |   |                                                                       | 17,016  |             |   | 1,386  |  |   | —        |   |   | 18,402  |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total current liabilities                                                   |  |          | 2,560   |                                         |   | —                                          |   |                                                                       | 31,475  |             |   | 1,622  |  |   | —        |   |   | 35,657  |  
|Intercompany payable                                                        |  |          | —       |                                         |   | —                                          |   |                                                                       | 278,379 |             |   | —      |  |   | (278,379 | ) |   | —       |  
|Long-term
                    debt, net of current portion                  |  |          | 352,175 |                                         |   | 100,000                                    |   |                                                                       | —       |             |   | 16,307 |  |   | (100,000 | ) |   | 368,482 |  
|Advances
                    from Hess, net                                 |  |          | —       |                                         |   | —                                          |   |                                                                       | 11,866  |             |   | —      |  |   | —        |   |   | 11,866  |  
|Deferred
                    income taxes                                   |  |          | —       |                                         |   | —                                          |   |                                                                       | 2,681   |             |   | —      |  |   | —        |   |   | 2,681   |  
|Other
                    liabilities                                       |  |          | 2,080   |                                         |   | —                                          |   |                                                                       | —       |             |   | —      |  |   | —        |   |   | 2,080   |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total liabilities                                                           |  |          | 356,815 |                                         |   | 100,000                                    |   |                                                                       | 324,401 |             |   | 17,929 |  |   | (378,379 | ) |   | 420,766 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Minority
                    interest in Joint Venture                      |  |          | —       |                                         |   | —                                          |   |                                                                       | —       |             |   | 17,581 |  |   | —        |   |   | 17,581  |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Commitments
                    and contingencies                           |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Partners’ Capital                                                           |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Partners’ capital                                                           |  |          | 167,823 |                                         |   | (5,541                                     | ) |                                                                       | 221,370 |             |   | 11,658 |  |   | (227,487 | ) |   | 167,823 |  
|Accumulated
                    other comprehensive loss                    |  |          | (746    | )                                       |   | —                                          |   |                                                                       | —       |             |   | —      |  |   | —        |   |   | (746    | )
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total partners’ capital                                                     |  |          | 167,077 |                                         |   | (5,541                                     | ) |                                                                       | 221,370 |             |   | 11,658 |  |   | (227,487 | ) |   | 167,077 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  
|Total liabilities and partners’ capital                                     |  | $        | 523,892 |                                         | $ | 94,459                                     |   | $                                                                     | 545,771 |             | $ | 47,168 |  | $ | (605,866 | ) | $ | 605,424 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |        |  |   |          |   |   |         |  

* Both the Parent and the Subsidiary Issuer are
        co-issuers of $100,000 in 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.

16

---



U.S. Shipping Partners L.P.
        Unaudited Consolidating Statement of Operations
        Three Months Ended September 30, 2007
        (in thousands)

|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|--------------------------------------------------------------------------- |  | -------- | ------ | --------------------------------------- | - | ------------------------------------------ | - | --------------------------------------------------------------------- | ------ | ----------- | - | ----- | - | - | ------ | - | - | ------ | -
|                                                                            |  | Parent * |        | Subsidiary
                    Issuer * |   | Guarantor
                    Subsidiaries |   | Non-
                    Guarantor
                    Subsidiaries** |        | Adjustments |   | Total |  
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |  
|Revenues                                                                    |  | $        | —      |                                         | $ | —                                          |   | $                                                                     | 45,559 |             | $ | —     |   | $ | —      |   | $ | 45,559 |  
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|Operating expenses                                                          |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|Vessel
                    operating expenses                               |  |          | —      |                                         |   | —                                          |   |                                                                       | 16,762 |             |   | —     |   |   | —      |   |   | 16,762 |  
|Voyage
                    expenses                                         |  |          | —      |                                         |   | —                                          |   |                                                                       | 11,360 |             |   | —     |   |   | —      |   |   | 11,360 |  
|General and
                    administrative expenses                     |  |          | 37     |                                         |   | —                                          |   |                                                                       | 3,264  |             |   | 386   |   |   | —      |   |   | 3,687  |  
|Depreciation and amortization                                               |  |          | —      |                                         |   | —                                          |   |                                                                       | 9,831  |             |   | —     |   |   | —      |   |   | 9,831  |  
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|Total
                    operating expenses, net                           |  |          | 37     |                                         |   | —                                          |   |                                                                       | 41,217 |             |   | 386   |   |   | —      |   |   | 41,640 |  
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|Operating
                    (loss) income                                 |  |          | (37    | )                                       |   | —                                          |   |                                                                       | 4,342  |             |   | (386  | ) |   | —      |   |   | 3,919  |  
|Interest
                    expense                                        |  |          | 8,848  |                                         |   | 3,407                                      |   |                                                                       | —      |             |   | —     |   |   | (3,407 | ) |   | 8,848  |  
|Interest
                    income                                         |  |          | —      |                                         |   | —                                          |   |                                                                       | (2,471 | )           |   | —     |   |   | —      |   |   | (2,471 | )
|Loss on
                    derivative financial instruments                |  |          | —      |                                         |   | —                                          |   |                                                                       | —      |             |   | 235   |   |   | —      |   |   | 235    |  
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|(Loss)
                    income before income taxes and minority interest |  |          | (8,885 | )                                       |   | (3,407                                     | ) |                                                                       | 6,813  |             |   | (621  | ) |   | 3,407  |   |   | (2,693 | )
|Benefit for
                    income taxes                                |  |          | —      |                                         |   | —                                          |   |                                                                       | (364   | )           |   | —     |   |   | —      |   |   | (364   | )
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|(Loss)
                    income before minority interest                  |  |          | (8,885 | )                                       |   | (3,407                                     | ) |                                                                       | 7,177  |             |   | (621  | ) |   | 3,407  |   |   | (2,329 | )
|Equity in
                    earnings of unconsolidated affiliates         |  |          | 6,907  |                                         |   | —                                          |   |                                                                       | —      |             |   | —     |   |   | (6,907 | ) |   | —      |  
|Minority
                    interest in Joint Venture loss                 |  |          | —      |                                         |   | —                                          |   |                                                                       | —      |             |   | 351   |   |   | —      |   |   | 351    |  
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  
|Net (loss)
                    income                                       |  | $        | (1,978 | )                                       | $ | (3,407                                     | ) | $                                                                     | 7,177  |             | $ | (270  | ) | $ | (3,500 | ) | $ | (1,978 | )
|                                                                            |  |          |        |                                         |   |                                            |   |                                                                       |        |             |   |       |   |   |        |   |   |        |  

* 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.

U.S. Shipping Partners L.P.
        Unaudited Consolidating Statement of Operations
        Nine Months Ended September 30, 2007
        (in thousands)

|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|--------------------------------------------------------------------------- |  | -------- | ------- | --------------------------------------- | - | ------------------------------------------ | - | --------------------------------------------------------------------- | ------- | ----------- | - | ----- | - | - | ------- | - | - | ------- | -
|                                                                            |  | Parent * |         | Subsidiary
                    Issuer * |   | Guarantor
                    Subsidiaries |   | Non-
                    Guarantor
                    Subsidiaries** |         | Adjustments |   | Total |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |  
|Revenues                                                                    |  | $        | —       |                                         | $ | —                                          |   | $                                                                     | 133,262 |             | $ | —     |   | $ | —       |   | $ | 133,262 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Operating expenses                                                          |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Vessel
                    operating expenses                               |  |          | —       |                                         |   | —                                          |   |                                                                       | 49,087  |             |   | —     |   |   | —       |   |   | 49,087  |  
|Voyage
                    expenses                                         |  |          | —       |                                         |   | —                                          |   |                                                                       | 27,509  |             |   | —     |   |   | —       |   |   | 27,509  |  
|General and
                    administrative expenses                     |  |          | 74      |                                         |   | —                                          |   |                                                                       | 11,100  |             |   | 519   |   |   | —       |   |   | 11,693  |  
|Depreciation and amortization                                               |  |          | —       |                                         |   | —                                          |   |                                                                       | 27,933  |             |   | —     |   |   | —       |   |   | 27,933  |  
|Other
                    expense (income)                                  |  |          | —       |                                         |   | —                                          |   |                                                                       | (3,486  | )           |   | —     |   |   | —       |   |   | (3,486  | )
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Total
                    operating expenses, net                           |  |          | 74      |                                         |   | —                                          |   |                                                                       | 112,143 |             |   | 519   |   |   | —       |   |   | 112,736 |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Operating
                    (loss) income                                 |  |          | (74     | )                                       |   | —                                          |   |                                                                       | 21,119  |             |   | (519  | ) |   | —       |   |   | 20,526  |  
|Interest
                    expense                                        |  |          | 22,419  |                                         |   | 10,228                                     |   |                                                                       | —       |             |   | 1     |   |   | (10,228 | ) |   | 22,420  |  
|Interest
                    income                                         |  |          | —       |                                         |   | —                                          |   |                                                                       | (7,713  | )           |   | (5    | ) |   | —       |   |   | (7,718  | )
|Gain on
                    derivative financial instruments                |  |          | (173    | )                                       |   | —                                          |   |                                                                       | —       |             |   | (496  | ) |   | —       |   |   | (669    | )
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|(Loss)
                    income before income taxes and minority interest |  |          | (22,320 | )                                       |   | (10,228                                    | ) |                                                                       | 28,832  |             |   | (19   | ) |   | 10,228  |   |   | 6,493   |  
|Provision
                    for income taxes                              |  |          | —       |                                         |   | —                                          |   |                                                                       | 258     |             |   | —     |   |   | —       |   |   | 258     |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|(Loss)
                    income before minority interest                  |  |          | (22,320 | )                                       |   | (10,228                                    | ) |                                                                       | 28,574  |             |   | (19   | ) |   | 10,228  |   |   | 6,235   |  
|Equity in
                    earnings of unconsolidated affiliates         |  |          | 28,499  |                                         |   | —                                          |   |                                                                       | —       |             |   | —     |   |   | (28,499 | ) |   | —       |  
|Minority
                    interest in Joint Venture loss income          |  |          | —       |                                         |   | —                                          |   |                                                                       | —       |             |   | (56   | ) |   | —       |   |   | (56     | )
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Net income
                    (loss)                                       |  | $        | 6,179   |                                         | $ | (10,228                                    | ) | $                                                                     | 28,574  |             | $ | (75   | ) | $ | (18,271 | ) | $ | 6,179   |  
|                                                                            |  |          |         |                                         |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  

* 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.

17

---



U.S. Shipping Partners L.P.
        Unaudited Consolidating Statement of Operations
        Three Months Ended September 30, 2006
        (in thousands)

|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|--------------------------------------------------------------------------- |  | ------- | ------ | --------------------------------------- | - | ------------------------------------------ | - | ---------------------------------------------------------------------- | ------ | ----------- | - | ----- | - | - | ------ | - | - | ------ | -
|                                                                            |  | Parent* |        | Subsidiary
                    Issuer * |   | Guarantor
                    Subsidiaries |   | Non-
                    Guarantor
                    Subsidiaries ** |        | Adjustments |   | Total |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|Revenues                                                                    |  | $       | —      |                                         | $ | —                                          |   | $                                                                      | 38,503 |             | $ | —     |   | $ | —      |   | $ | 38,503 |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|Operating expenses                                                          |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|Vessel
                    operating expenses                               |  |         | —      |                                         |   | —                                          |   |                                                                        | 16,501 |             |   | —     |   |   | —      |   |   | 16,501 |  
|Voyage
                    expenses                                         |  |         | —      |                                         |   | —                                          |   |                                                                        | 5,962  |             |   | —     |   |   | —      |   |   | 5,962  |  
|General and
                    administrative expenses                     |  |         | 250    |                                         |   | —                                          |   |                                                                        | 2,970  |             |   | 502   |   |   | —      |   |   | 3,722  |  
|Depreciation and amortization                                               |  |         | —      |                                         |   | —                                          |   |                                                                        | 8,185  |             |   | —     |   |   | —      |   |   | 8,185  |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|Total operating expenses                                                    |  |         | 250    |                                         |   | —                                          |   |                                                                        | 33,618 |             |   | 502   |   |   | —      |   |   | 34,370 |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|Operating (loss) income                                                     |  |         | (250   | )                                       |   | —                                          |   |                                                                        | 4,885  |             |   | (502  | ) |   | —      |   |   | 4,133  |  
|Interest
                    expense                                        |  |         | 5,650  |                                         |   | 2,058                                      |   |                                                                        | —      |             |   | —     |   |   | (2,058 | ) |   | 5,650  |  
|Interest
                    income                                         |  |         | —      |                                         |   | —                                          |   |                                                                        | (2,046 | )           |   | —     |   |   | —      |   |   | (2,046 | )
|Loss on
                    debt extinguishment                             |  |         | 2,451  |                                         |   | —                                          |   |                                                                        | —      |             |   | —     |   |   | —      |   |   | 2,451  |  
|Gain on
                    termination of hedge                            |  |         | (1,913 | )                                       |   | —                                          |   |                                                                        | —      |             |   | —     |   |   | —      |   |   | (1,913 | )
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|(Loss) income before income taxes and minority
                    interest |  |         | (6,438 | )                                       |   | (2,058                                     | ) |                                                                        | 6,931  |             |   | (502  | ) |   | 2,058  |   |   | (9     | )
|Provision
                    for income taxes                              |  |         | —      |                                         |   | —                                          |   |                                                                        | 653    |             |   | —     |   |   | —      |   |   | 653    |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|(Loss) income before minority interest                                      |  |         | (6,438 | )                                       |   | (2,058                                     | ) |                                                                        | 6,278  |             |   | (502  | ) |   | 2,058  |   |   | (662   | )
|Equity in
                    earnings of unconsolidated affiliates         |  |         | 6,077  |                                         |   | —                                          |   |                                                                        | —      |             |   | —     |   |   | (6,077 | ) |   | —      |  
|Minority
                    interest in Joint Venture loss                 |  |         | —      |                                         |   | —                                          |   |                                                                        | —      |             |   | 301   |   |   | —      |   |   | 301    |  
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  
|Net (loss) income                                                           |  | $       | (361   | )                                       | $ | (2,058                                     | ) | $                                                                      | 6,278  |             | $ | (201  | ) | $ | (4,019 | ) | $ | (361   | )
|                                                                            |  |         |        |                                         |   |                                            |   |                                                                        |        |             |   |       |   |   |        |   |   |        |  

* 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.

U.S. Shipping Partners L.P.
        Unaudited Consolidating Statement of Operations
        Nine Months Ended September 30, 2006
        (in thousands)

|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|--------------------------------------------------------------------------- |  | ------- | ------ | -------------------------------------- | - | ------------------------------------------ | - | --------------------------------------------------------------------- | ------- | ----------- | - | ----- | - | - | ------- | - | - | ------- | -
|                                                                            |  | Parent* |        | Subsidiary
                    Issuer* |   | Guarantor
                    Subsidiaries |   | Non-
                    Guarantor
                    Subsidiaries** |         | Adjustments |   | Total |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Revenues                                                                    |  | $       | —      |                                        | $ | —                                          |   | $                                                                     | 113,341 |             | $ | —     |   | $ | —       |   | $ | 113,341 |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Operating expenses                                                          |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Vessel
                    operating expenses                               |  |         | —      |                                        |   | —                                          |   |                                                                       | 44,461  |             |   | —     |   |   | —       |   |   | 44,461  |  
|Voyage
                    expenses                                         |  |         | —      |                                        |   | —                                          |   |                                                                       | 21,153  |             |   | —     |   |   | —       |   |   | 21,153  |  
|General and
                    administrative expenses                     |  |         | 250    |                                        |   | —                                          |   |                                                                       | 8,972   |             |   | 502   |   |   | —       |   |   | 9,724   |  
|Depreciation and amortization                                               |  |         | —      |                                        |   | —                                          |   |                                                                       | 23,034  |             |   | —     |   |   | —       |   |   | 23,034  |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Total operating expenses                                                    |  |         | 250    |                                        |   | —                                          |   |                                                                       | 97,620  |             |   | 502   |   |   | —       |   |   | 98,372  |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Operating (loss) income                                                     |  |         | (250   | )                                      |   | —                                          |   |                                                                       | 15,721  |             |   | (502  | ) |   | —       |   |   | 14,969  |  
|Interest
                    expense                                        |  |         | 9,061  |                                        |   | 2,058                                      |   |                                                                       | —       |             |   | —     |   |   | (2,058  | ) |   | 9,061   |  
|Interest
                    income                                         |  |         | —      |                                        |   | —                                          |   |                                                                       | (2,337  | )           |   | —     |   |   | —       |   |   | (2,337  | )
|Loss on
                    debt extinguishment                             |  |         | 2,451  |                                        |   | —                                          |   |                                                                       | —       |             |   | —     |   |   | —       |   |   | 2,451   |  
|Gain on
                    termination of hedge                            |  |         | (1,913 | )                                      |   | —                                          |   |                                                                       | —       |             |   | —     |   |   | —       |   |   | (1,913  | )
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|(Loss) income before income taxes and minority
                    interest |  |         | (9,849 | )                                      |   | (2,058                                     | ) |                                                                       | 18,058  |             |   | (502  | ) |   | 2,058   |   |   | 7,707   |  
|Provision
                    for income taxes                              |  |         | —      |                                        |   | —                                          |   |                                                                       | 1,208   |             |   | —     |   |   | —       |   |   | 1,208   |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|(Loss) income before minority interest                                      |  |         | (9,849 | )                                      |   | (2,058                                     | ) |                                                                       | 16,850  |             |   | (502  | ) |   | 2,058   |   |   | 6,499   |  
|Equity in
                    earnings of unconsolidated affiliates         |  |         | 16,649 |                                        |   | —                                          |   |                                                                       | —       |             |   | —     |   |   | (16,649 | ) |   | —       |  
|Minority
                    interest in Joint Venture loss                 |  |         | —      |                                        |   | —                                          |   |                                                                       | —       |             |   | 301   |   |   | —       |   |   | 301     |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  
|Net income (loss)                                                           |  | $       | 6,800  |                                        | $ | (2,058                                     | ) | $                                                                     | 16,850  |             | $ | (201  | ) | $ | (14,591 | ) | $ | 6,800   |  
|                                                                            |  |         |        |                                        |   |                                            |   |                                                                       |         |             |   |       |   |   |         |   |   |         |  

* 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.

18

---



U.S. Shipping Partners L.P.
        Unaudited Consolidating Statement of Cash Flows
        For the Nine Months Ended September 30, 2007
        (in thousands)

|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ------- | ------------------ | - | --------------------- | - | --------------------------- | ------- | ----------- | - | ------- | - | - | ------- | - | - | -------- | -
|                                                                                                                                          |  | Parent * |         | SubsidiaryIssuer * |   | GuarantorSubsidiaries |   | Non-GuarantorSubsidiaries** |         | Adjustments |   | Total   |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Cash
                    flows from operating activities                                                                                  |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Net income
                    (loss)                                                                                                     |  |          | 6,179   |                    |   | (10,228               | ) |                             | 28,574  |             |   | (75     | ) |   | (18,271 | ) | $ | 6,179    |  
|Adjustments
                    to reconcile net income (loss) to net cash provided by (used in) operating
                    activities |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Depreciation of vessels and equipment, and amortization of
                    drydock costs and deferred financing costs                 |  |          | 1,256   |                    |   | 478                   |   |                             | 27,932  |             |   | —       |   |   | (478    | ) |   | 29,188   |  
|Provision
                    for accounts receivable                                                                                     |  |          | —       |                    |   | —                     |   |                             | 479     |             |   | —       |   |   | —       |   |   | 479      |  
|Deferred
                    income taxes                                                                                                 |  |          | —       |                    |   | —                     |   |                             | (552    | )           |   | —       |   |   | —       |   |   | (552     | )
|Equity
                    compensation                                                                                                   |  |          | 74      |                    |   | —                     |   |                             | —       |             |   | —       |   |   | —       |   |   | 74       |  
|Minority
                    interest in Joint Venture income                                                                             |  |          | —       |                    |   | —                     |   |                             | —       |             |   | 56      |   |   | —       |   |   | 56       |  
|Gain on
                    derivative financial instruments                                                                              |  |          | (173    | )                  |   | —                     |   |                             | —       |             |   | (496    | ) |   | —       |   |   | (669     | )
|Capitalized
                    drydock costs                                                                                             |  |          | —       |                    |   | —                     |   |                             | (9,696  | )           |   | —       |   |   | —       |   |   | (9,696   | )
|Equity in
                    earnings of unconsolidated subsidiaries                                                                     |  |          | (28,499 | )                  |   | —                     |   |                             | —       |             |   | —       |   |   | 28,499  |   |   | —        |  
|Changes in
                    assets and liabilities:                                                                                    |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Accounts
                    receivable                                                                                                   |  |          | —       |                    |   | —                     |   |                             | (2,491  | )           |   | —       |   |   | —       |   |   | (2,491   | )
|Prepaid
                    expenses and other current assets                                                                             |  |          | —       |                    |   | —                     |   |                             | (3,849  | )           |   | 19      |   |   | —       |   |   | (3,830   | )
|Other
                    assets                                                                                                          |  |          | —       |                    |   | —                     |   |                             | (95     | )           |   | —       |   |   | —       |   |   | (95      | )
|Accounts
                    payable                                                                                                      |  |          | —       |                    |   | —                     |   |                             | 1,466   |             |   | —       |   |   | —       |   |   | 1,466    |  
|Deferred
                    revenue                                                                                                      |  |          | —       |                    |   | —                     |   |                             | (1,178  | )           |   | —       |   |   | —       |   |   | (1,178   | )
|Accrued
                    expenses and other liabilities                                                                                |  |          | —       |                    |   | —                     |   |                             | 34      |             |   | 60      |   |   | —       |   |   | 94       |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Net cash
                    (used in)  provided by operating activities                                                                  |  |          | (21,163 | )                  |   | (9,750                | ) |                             | 40,624  |             |   | (436    | ) |   | 9,750   |   |   | 19,025   |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Cash
                    flows from investing activities                                                                                  |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Change in
                    restricted cash and equivalents, net                                                                        |  |          | —       |                    |   | —                     |   |                             | 55,762  |             |   | —       |   |   | —       |   |   | 55,762   |  
|Cash
                    received upon settlement of derivative financial instruments                                                     |  |          | 173     |                    |   | —                     |   |                             | —       |             |   | —       |   |   | —       |   |   | 173      |  
|Payments to
                    Hess, net                                                                                                 |  |          | —       |                    |   | —                     |   |                             | (447    | )           |   | —       |   |   | —       |   |   | (447     | )
|Purchase of
                    interest rate cap                                                                                         |  |          | —       |                    |   | —                     |   |                             | —       |             |   | (1,924  | ) |   | —       |   |   | (1,924   | )
|Construction of vessels and equipment                                                                                                     |  |          | —       |                    |   | —                     |   |                             | (82,459 | )           |   | (28,193 | ) |   | —       |   |   | (110,652 | )
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Net cash
                    provided by (used in) investing activities                                                                   |  |          | 173     |                    |   | —                     |   |                             | (27,144 | )           |   | (30,117 | ) |   | —       |   |   | (57,088  | )
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Cash
                    flows from financing activities                                                                                  |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Proceeds
                    from borrowings                                                                                              |  |          | 54,000  |                    |   | —                     |   |                             | —       |             |   | —       |   |   | —       |   |   | 54,000   |  
|Contribution by minority interest equity investors in Joint
                    Venture                                                   |  |          | —       |                    |   | —                     |   |                             | —       |             |   | 16,241  |   |   | (6,496  | ) |   | 9,745    |  
|Proceeds
                    from Joint Venture revolver borrowings                                                                       |  |          | —       |                    |   | —                     |   |                             | —       |             |   | 14,318  |   |   | —       |   |   | 14,318   |  
|Repayment
                    of debt                                                                                                     |  |          | (2,164  | )                  |   | —                     |   |                             | —       |             |   | —       |   |   | —       |   |   | (2,164   | )
|Deferred
                    financing costs                                                                                              |  |          | (158    | )                  |   | —                     |   |                             | —       |             |   | —       |   |   | —       |   |   | (158     | )
|Intercompany receivable / payable                                                                                                         |  |          | (5,572  | )                  |   | 9,750                 |   |                             | (924    | )           |   | —       |   |   | (3,254  | ) |   | —        |  
|Distributions to partners/members                                                                                                         |  |          | (25,116 | )                  |   | —                     |   |                             | —       |             |   | —       |   |   | —       |   |   | (25,116  | )
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Net cash
                    provided by (used in) financing activities                                                                   |  | $        | 20,990  |                    | $ | 9,750                 |   | $                           | (924    | )           | $ | 30,559  |   | $ | (9,750  | ) | $ | 50,625   |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Net increase in cash and cash equivalents                                                                                                 |  |          | —       |                    |   | —                     |   |                             | 12,556  |             |   | 6       |   |   | —       |   |   | 12,562   |  
|Cash and
                    cash equivalents at beginning of period                                                                      |  |          | —       |                    |   | —                     |   |                             | 2,686   |             |   | —       |   |   | —       |   |   | 2,686    |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  
|Cash and
                    cash equivalents at end of period                                                                            |  | $        | —       |                    | $ | —                     |   | $                           | 15,242  |             | $ | 6       |   | $ | —       |   | $ | 15,248   |  
|                                                                                                                                          |  |          |         |                    |   |                       |   |                             |         |             |   |         |   |   |         |   |   |          |  

* 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.

19

---



U.S. Shipping Partners L.P.
        Unaudited Consolidating Statement of Cash Flows
        For the Nine Months Ended September 30, 2006
        (in thousands)

|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ------- | -------- | ------------------ | - | --------------------- | - | ------------------------------------------------ | -------- | ----------- | - | ------- | - | - | -------- | - | - | -------- | -
|                                                                                                                                          |  | Parent* |          | SubsidiaryIssuer * |   | GuarantorSubsidiaries |   | Non-
                    GuarantorSubsidiaries** |          | Adjustments |   | Total   |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Cash
                    flows from operating activities                                                                                  |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Net income
                    (loss)                                                                                                     |  | $       | 6,800    |                    | $ | (2,058                | ) | $                                                | 16,850   |             | $ | (201    | ) | $ | (14,591  | ) | $ | 6,800    |  
|Adjustments
                    to reconcile net income (loss) to net cash (used in) provided by operating
                    activities |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Depreciation of vessels and equipment, and amortization of
                    drydock costs and deferred financing costs                 |  |         | 767      |                    |   | 108                   |   |                                                  | 23,034   |             |   | —       |   |   | (108     | ) |   | 23,801   |  
|Deferred income taxes                                                                                                                     |  |         | —        |                    |   | —                     |   |                                                  | (597     | )           |   | —       |   |   | —        |   |   | (597     | )
|Capitalized drydock costs                                                                                                                 |  |         | —        |                    |   | —                     |   |                                                  | (25,373  | )           |   | —       |   |   | —        |   |   | (25,373  | )
|Gain on termination of hedge                                                                                                              |  |         | (1,913   | )                  |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | (1,913   | )
|Loss on debt extinguishment                                                                                                               |  |         | 2,451    |                    |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | 2,451    |  
|Equity in earnings of unconsolidated subsidiaries                                                                                         |  |         | (16,649  | )                  |   | —                     |   |                                                  | —        |             |   | —       |   |   | 16,649   |   |   | —        |  
|Minority interest in Joint Venture loss                                                                                                   |  |         | —        |                    |   | —                     |   |                                                  | —        |             |   | (301    | ) |   | —        |   |   | (301     | )
|Provision for accounts receivable                                                                                                         |  |         | —        |                    |   | —                     |   |                                                  | 45       |             |   | —       |   |   | —        |   |   | 45       |  
|Changes in assets and liabilities                                                                                                         |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Accounts receivable                                                                                                                       |  |         | —        |                    |   | —                     |   |                                                  | (70      | )           |   | —       |   |   | —        |   |   | (70      | )
|Prepaid expenses and other current assets                                                                                                 |  |         | —        |                    |   | —                     |   |                                                  | (1,048   | )           |   | (300    | ) |   | —        |   |   | (1,348   | )
|Other assets                                                                                                                              |  |         | —        |                    |   | —                     |   |                                                  | 1,399    |             |   | —       |   |   | —        |   |   | 1,399    |  
|Accounts payable                                                                                                                          |  |         | —        |                    |   | —                     |   |                                                  | 7,797    |             |   | —       |   |   | —        |   |   | 7,797    |  
|Deferred revenue                                                                                                                          |  |         | —        |                    |   | —                     |   |                                                  | 2,372    |             |   | —       |   |   | —        |   |   | 2,372    |  
|Accrued expenses and other liabilities                                                                                                    |  |         | —        |                    |   | —                     |   |                                                  | 6,060    |             |   | 338     |   |   | —        |   |   | 6,398    |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Net cash (used in) provided by operating activities                                                                                       |  |         | (8,544   | )                  |   | (1,950                | ) |                                                  | 30,469   |             |   | (464    | ) |   | 1,950    |   |   | 21,461   |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Cash
                    flows from investing activities                                                                                  |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Proceeds
                    from Senesco settlement                                                                                      |  |         | —        |                    |   | —                     |   |                                                  | 21,000   |             |   | —       |   |   | —        |   |   | 21,000   |  
|Construction/purchase of vessels                                                                                                          |  |         | —        |                    |   | —                     |   |                                                  | (50,762  | )           |   | (27,823 | ) |   | —        |   |   | (78,585  | )
|Purchase of
                    office furniture, equipment and other                                                                     |  |         | —        |                    |   | —                     |   |                                                  | (317     | )           |   | —       |   |   | —        |   |   | (317     | )
|Change in
                    restricted cash and equivalents, net                                                                        |  |         | —        |                    |   | —                     |   |                                                  | (226,909 | )           |   | —       |   |   | —        |   |   | (226,909 | )
|Payments to
                    Hess, net                                                                                                 |  |         | —        |                    |   | —                     |   |                                                  | (852     | )           |   | —       |   |   | —        |   |   | (852     | )
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Net cash used in investing activities                                                                                                     |  |         | —        |                    |   | —                     |   |                                                  | (257,840 | )           |   | (27,823 | ) |   | —        |   |   | (285,663 | )
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Cash
                    flows from financing activities                                                                                  |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Proceeds
                    from issuance of debt                                                                                        |  |         | 350,000  |                    |   | 100,000               |   |                                                  | —        |             |   | —       |   |   | (100,000 | ) |   | 350,000  |  
|Gross
                    proceeds from equity issuance                                                                                   |  |         | 79,084   |                    |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | 79,084   |  
|Proceeds
                    from revolver borrowings                                                                                     |  |         | 25,000   |                    |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | 25,000   |  
|Contribution by minority interest equity investors in Joint
                    Venture                                                   |  |         | —        |                    |   | —                     |   |                                                  | —        |             |   | 45,957  |   |   | (18,383  | ) |   | 27,574   |  
|Proceeds
                    from Joint Venture revolver borrowings                                                                       |  |         | —        |                    |   | —                     |   |                                                  | —        |             |   | 13,866  |   |   | —        |   |   | 13,866   |  
|Repayment
                    of debt                                                                                                     |  |         | (128,662 | )                  |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | (128,662 | )
|Repayment
                    of revolver borrowings                                                                                      |  |         | (25,000  | )                  |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | (25,000  | )
|Deferred
                    financing costs                                                                                              |  |         | (11,587  | )                  |   | (5,013                | ) |                                                  | —        |             |   | (12,959 | ) |   | 5,013    |   |   | (24,546  | )
|Partnership
                    equity offering expenses                                                                                  |  |         | (2,785   | )                  |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | (2,785   | )
|Joint
                    Venture equity offering expenses                                                                                |  |         | (2,931   | )                  |   | —                     |   |                                                  | —        |             |   | (18,577 | ) |   | 7,431    |   |   | (14,077  | )
|Intercompany receivable/payable                                                                                                           |  |         | (255,442 | )                  |   | (93,037               | ) |                                                  | 244,490  |             |   | —       |   |   | 103,989  |   |   | —        |  
|Proceeds
                    from hedge termination                                                                                       |  |         | 1,913    |                    |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | 1,913    |  
|Distributions to partners / members                                                                                                       |  |         | (21,046  | )                  |   | —                     |   |                                                  | —        |             |   | —       |   |   | —        |   |   | (21,046  | )
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Net cash provided by financing activities                                                                                                 |  |         | 8,544    |                    |   | 1,950                 |   |                                                  | 244,490  |             |   | 28,287  |   |   | (1,950   | ) |   | 281,321  |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Net
                    increase in cash and cash equivalents                                                                             |  |         | —        |                    |   | —                     |   |                                                  | 17,119   |             |   | —       |   |   | —        |   |   | 17,119   |  
|Cash and
                    cash equivalents at beginning of period                                                                      |  |         | —        |                    |   | —                     |   |                                                  | 10,000   |             |   | —       |   |   | —        |   |   | 10,000   |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  
|Cash and
                    cash equivalents at end of period                                                                            |  | $       | —        |                    | $ | —                     |   | $                                                | 27,119   |             | $ | —       |   | $ | —        |   | $ | 27,119   |  
|                                                                                                                                          |  |         |          |                    |   |                       |   |                                                  |          |             |   |         |   |   |          |   |   |          |  

* 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.

20

---



|    |                  
|--- | -----------------
|17. | Subsequent Events

Distributions

On November 1,
        2007, the Board of Directors of the general partner declared the Partnership’s
        regular cash distribution for the third quarter of 2007 of $0.45 per unit. The distribution
        will be paid on all common, subordinated and general partner units on November 15, 2007 to
        all unitholders of record on November 9, 2007. The aggregate amount of the distribution
        will be $8,372.

Claims and
        Litigation

In October 2007,
        the Partnership commenced suit against Southeastern New England Shipbuilding Corporation
        (“SENESCO”) and certain affiliated parties. The suit alleges, among other
        things, that SENESCO violated certain contractual obligations of the May 2006 agreement
        between SENESCO and the Partnership regarding the construction and launch of the ATB
        Freeport. The ultimate outcome of this litigation or any other litigation to which the
        Partnership is subject cannot be predicted with certainty.

|                            |                                                                                                          
|--------------------------- | ---------------------------------------------------------------------------------------------------------
|ITEM
                    2. | Management’s Discussion and
                    Analysis of Financial Condition and Results of Operations

Overview

We are a leading
        provider of long-haul marine transportation services, principally for refined petroleum
        products, in the U.S. domestic “coastwise” trade. We are also a leading
        provider of coastwise transportation of petrochemical and commodity chemical products, as
        measured by fleet capacity. Marine transportation is a vital link in the distribution of
        refined petroleum, petrochemical and commodity chemical products in the United States. We
        do not assume ownership of any of the products that we transport on our vessels. Our
        existing fleet consists of eleven tank vessels: six integrated tug barge units
        (“ITBs”); one product tanker; three chemical parcel tankers and one articulated
        tug barge unit (“ATB”) that was delivered in June 2007 and entered service in
        July 2007. With the addition of three new articulated tug barge units currently under
        construction and an option to build a fifth ATB unit, we are adding double-hull newbuilds
        to our fleet, which are in compliance with OPA 90, that will serve customers in both the
        refined petroleum product and chemical markets. Our primary customers are major oil and
        chemical companies. In the past, a significant portion of our fleet capacity was committed
        to these companies pursuant to contracts with initial terms of one year or more, which
        provided us with a relatively predictable level of cash flow. However, while the vessels
        that serve our chemical customers and the product tanker remain under long term contracts,
        we expect that the number of our ITBs trading in the spot market will increase from two to
        at least four by the second quarter of 2008, without the benefit of minimum specified rates
        established pursuant to the Hess Support Agreement, and, as a result, our cash flows will
        be less predictable and may be more volatile.

We, through our
        subsidiary USS Product Carriers LLC (“Product Carriers”), entered into a
        contract with the National Steel and Shipbuilding Company (“NASSCO”), a
        subsidiary of General Dynamics Corporation (“General Dynamics”), for the
        construction of nine 49,000 deadweight tons (“dwt”) double-hulled tankers.
        General Dynamics provided a performance guarantee to Product Carriers in respect of the
        obligations of NASSCO under the construction contract. NASSCO is scheduled to deliver the
        first tanker in the first quarter of 2009, with subsequent tankers delivered every four to
        eight months. On August 7, 2006, Product Carriers entered into a joint venture, USS
        Products Investor LLC (the “Joint Venture”), to finance the construction of the
        first five tankers. We manage and own a 40% interest in the Joint Venture and third parties
        own the remaining 60% interest. However, due to our control of the Joint Venture, as well
        as other aspects of the joint venture agreement, the financial statements of the Joint
        Venture are consolidated with ours for financial reporting purposes. We present in our
        consolidated financial statements the debt of the Joint Venture, but we have no obligation
        for the liabilities of the Joint Venture in excess of our $70.0 million capital commitment,
        of which approximately $25.9 million has already been made. The portion of the net income
        or loss of the Joint Venture attributable to the 60% owners of the Joint Venture is set
        forth under the caption “Minority interest in Joint Venture loss (income)” on
        the Unaudited Condensed Consolidated Statements of Operations and Comprehensive
        Income.

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

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

| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | 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.                                             

21

---



The principal
        difference between contracts of affreightment and consecutive voyage charters is that in
        contracts of affreightment the customer is obligated to transport a specified minimum
        amount of product on our vessel during the contract period, while in a consecutive voyage
        charter the customer is obligated to fill the contracted portion of the vessel with its
        product every time the vessel calls at its facility during the contract period.

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

|                          |                   |                                               |                                                                    |                 
|------------------------- | ----------------- | --------------------------------------------- | ------------------------------------------------------------------ | ----------------
|                          | Time Charter      | Contract of
                    Affreightment | Consecutive
                    Voyage
                    Charter | Spot Charter    
|                          |                   |                                               |                                                                    |                 
|Typical contract length   | One year or more  | One year or more                              | Multiple voyages                                                   | Single voyage   
|Rate basis                | Daily             | Per ton                                       | Per ton                                                            | Varies          
|Voyage expenses           | Customer pays     | We pay (1)                                    | We pay (1)                                                         | We pay          
|Vessel operating expenses | We pay            | We pay                                        | We pay                                                             | We pay          
|Idle time                 | Customer pays as  | Customer pays if                              | Customer pays if                                                   | Customer pays if
|                          | long as vessel is | cargo not ready                               | cargo not ready                                                    | cargo not ready 
|                          | available for     |                                               |                                                                    |                 
|                          | operations        |                                               |                                                                    |                 

|    |                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Our contracts of affreightment and
                    consecutive voyage charters generally contain escalation clauses whereby fuel
                    cost increases are passed on to our customers.

For the nine
        months ending September 30, 2007 and 2006, we derived approximately 76% and 86%,
        respectively, of our revenue under time charters, consecutive voyage charters and contracts
        of affreightment, and approximately 24% and 14%, respectively, of our revenue from spot
        charters. For the three months ending September 30, 2007 and 2006, we derived approximately
        75% and 92%, respectively, of our revenue under time charters, consecutive voyage charters
        and contracts of affreightment, and approximately 25% and 8%, respectively, of our revenue
        from spot charters. We anticipate that the percentage of our revenues derived from spot
        charters will continue to increase in 2008.

We originally
        expected the supply of domestic tank vessels competing with us to decrease over the next
        several years due to the Oil Pollution Act of 1990 (“OPA 90”) which mandates
        the phase-out of certain non-double-hulled tank vessels at varying times by January 1,
        2015; and the Jones Act, which restricts the supply of new vessels by requiring that all
        vessels participating in the coastwise trade be constructed in the United States. However,
        with the recently announced newbuilding programs by us and our competitors, we expect that
        these new vessels will become fully utilized on delivery and replace substantially all the
        capacity taken out of the market due to OPA 90. It is possible that some of these vessels
        may be placed in service prior to the phase-out of currently operating vessels, which could
        result in an over-supply of vessel capacity in the near term. This trend could negatively
        impact our utilization rate in the future. As a result, we believe the domestic supply of
        tank vessels will not decrease at the rate we originally expected and may in fact
        increase.

Any additional
        newbuildings or retrofittings of existing tank vessels may result in additional capacity
        that the market will not be able to absorb at the anticipated demand levels. The
        availability of additional capacity could adversely affect the charter rates that we can
        obtain. Further, several of the major oil companies have imposed a limit on the age of the
        vessels that they will utilize, and our ITBs have reached, or will soon reach, these age
        limits. Accordingly, we expect that our ITBs will continue to derive an increasing
        percentage of their revenue from operating in the spot market over the next several years.
        Under the Hess Support Agreement, our vessels operating in the spot market were provided
        minimum prices regardless of rates in the spot market; however, since the Support Agreement
        expired in September 2007, our operations are affected by prices we can obtain in the spot
        market. With respect to our four ITBs currently operating under long-term charters,
        charters for three of the ITBs, which account for 100% of their usable capacity, expire by
        the end of 2007 and we cannot assure you that we will be able to obtain long-term charters
        for these vessels in 2008 and thereafter. To the extent that vessels are employed in the
        spot market, rather than pursuant to long-term charters, our cash flows will be less
        predictable and may be more volatile, and this volatility could adversely affect our
        business, results of operations and financial condition, our ability to make distributions
        on our common units, our ability to finance the construction and acquisition of new
        vessels, and our ability to pay principal of, and interest on, our debt. In addition, the
        announced or other newbuilding programs may make the retrofitting of our ITBs uneconomical
        or unattractive to charterers compared to a newly built vessel.

Our ITB fleet is
        currently our largest source of revenue and earnings before interest, taxes, depreciation
        and amortization (“EBITDA”). However, the expiration of the Hess Support
        Agreement in September 2007, under which we were assured minimum charter rates for our ITB
        fleet, the fact that more of our ITBs are expected to operate in the spot market rather
        than under long-term charters, increased volatility in rates in the spot market due to an
        increasing supply of vessels, and higher operating expenses of our

22

---



ITBs due to their age and the new union contracts will
        negatively impact the operating income and EBITDA provided by our ITBs over the next
        several years. Our liquidity has been affected by the cost overruns on the ATB
        Freeport, and may be further affected if our cash flows from the ITBs are reduced. We
        continue to monitor our liquidity requirements and levels closely to ensure we have
        adequate liquidity to meet our ongoing working capital requirements, and we continue to
        examine our capital structure and other alternatives with the goal of increasing liquidity
        including taking actions which could result in a reduction in the amount of the quarterly
        distribution paid on our subordinated units. Our inability to adequately address any
        liquidity issues that may arise in the future could impact our ability to pay the minimum
        quarterly distribution in full. It should be noted that the full minimum quarterly
        distribution on the common units of $0.45 will be paid prior to the payment of any
        distribution on the subordinated units.

In addition, we expect our
        revenues and EBITDA will be negatively impacted during the fourth quarter of 2007 due to
        the 25 day unplanned out-of-service period for the ITB Baltimore in October 2007 to
        repair damages it sustained while in the shipyard after completing its regularly scheduled
        drydocking during Hurricane Dean.

We have collective
        bargaining agreements with two maritime unions, the American Maritime Officers union, which
        covers the officers of our vessels, and the Seafarers’ International Union, which
        covers all of the other seagoing personnel, that expired in the second quarter of 2007. In
        September 2007, we reached an agreement with the American Maritime Officers union. The
        agreement is retroactive to May 1, 2007 and expires on April 30, 2010. A five year
        agreement with the Seafarers’ International Union was reached in October 2007. The
        two agreements are consistent with industry trends and provide for annual wage and benefit
        increases. For the nine months ended September 30, 2007, we incurred additional expense of
        $1.0 million due to these new contracts. These are our only collective bargaining
        agreements.

The amounts received from
        or paid to Hess pursuant to the Hess Support Agreement, or Support Agreement, were not
        recognized as revenue or expense but were deferred for accounting purposes and, as a result
        of the expiration of the Support Agreement in September 2007, are now reflected as an
        adjustment to the purchase price relating to the acquisition of the ITBs.

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 described in the preceding sentence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | • | Voyage expenses. Voyage expenses
                    include items such as fuel, port charges, pilot fees, tank cleaning costs,
                    canal tolls, brokerage commissions 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. Our contracts of affreightment and
                    consecutive voyage charters generally contain escalation clauses whereby
                    certain cost increases, including fuel, 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, bunkers and lube oils 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   | ¡                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Vessels and equipment are recorded at cost,
                    including capitalized interest and transaction fees where appropriate, and
                    depreciated to salvage value using the straight-line method as follows: ITBs
                    and the Sea Venture to their mandatory retirement from transportation of
                    petroleum products as required by OPA 90, between 2012 and 2014; 10 years for
                    the Chemical Pioneer, the Charleston and the Houston; and
                    30 years for the ATB Freeport based on their respective estimated useful
                    lives.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   | ¡                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | 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.                                     

23

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | ¡                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 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 60 months for the ITBs and 30 months for the
                    parcel tankers and the Houston; however, 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 30
                    months.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   | ¡                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 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 and amortize
                    these expenditures over 60 months for the ATBs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | • | 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. The ATBs also qualify for
                    the UWILD program. Our parcel tankers and the Houston must be drydocked
                    twice every five years and the petroleum tankers being constructed by the Joint
                    Venture must 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 charter rates charged to our customers, but also from
                    voyage expenses incurred as well as from external factors such as weather or
                    other delays.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

24

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Results of Operations

The following table summarizes our results of operations
        (dollars in thousands, except for average time charter equivalent rates and per unit
        data):

|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|--------------------------------------------------------------------------- |  | -------------------------- | ------------- | ------------------------- | ------------- | ------ | - | ---- | ------- | - | - | ------- | -
|                                                                            |  | For the Three Months Ended |               | For the Nine Months Ended |              
|                                                                            |  |                            | September 30, |                           | September 30, |       
|                                                                            |  |                            |               |                           |               |       
|                                                                            |  | 2007                       |               | 2006                      |               | 2007   |   | 2006 |        
|                                                                            |  |                            |               |                           |               |        |   |      |        
|                                                                           
|Voyage
                    revenue                                          |  | $                          | 45,559        |                           | $             | 38,503 |   | $    | 133,262 |   | $ | 113,341 |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|Vessel
                    operating expenses                               |  |                            | 16,762        |                           |               | 16,501 |   |      | 49,087  |   |   | 44,461  |  
|% of voyage
                    revenue                                     |  |                            | 36.8          | %                         |               | 42.9   | % |      | 36.8    | % |   | 39.2    | %
|Voyage
                    expenses                                         |  |                            | 11,360        |                           |               | 5,962  |   |      | 27,509  |   |   | 21,153  |  
|% of voyage
                    revenue                                     |  |                            | 24.9          | %                         |               | 15.5   | % |      | 20.6    | % |   | 18.7    | %
|General and
                    administrative expenses                     |  |                            | 3,687         |                           |               | 3,722  |   |      | 11,693  |   |   | 9,724   |  
|% of voyage
                    revenue                                     |  |                            | 8.1           | %                         |               | 9.7    | % |      | 8.8     | % |   | 8.6     | %
|Depreciation and amortization                                               |  |                            | 9,831         |                           |               | 8,185  |   |      | 27,933  |   |   | 23,034  |  
|Other
                    expense (income)                                  |  |                            | —             |                           |               | —      |   |      | (3,486  | ) |   | —       |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|Total
                    operating expenses, net                           |  |                            | 41,640        |                           |               | 34,370 |   |      | 112,736 |   |   | 98,372  |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|Operating
                    income                                        |  |                            | 3,919         |                           |               | 4,133  |   |      | 20,526  |   |   | 14,969  |  
|% of voyage
                    revenue                                     |  |                            | 8.6           | %                         |               | 10.7   | % |      | 15.4    | % |   | 13.2    | %
|Interest
                    expense                                        |  |                            | 8,848         |                           |               | 5,650  |   |      | 22,420  |   |   | 9,061   |  
|Interest
                    income                                         |  |                            | (2,471        | )                         |               | (2,046 | ) |      | (7,718  | ) |   | (2,337  | )
|Loss on
                    debt extinguishment                             |  |                            | —             |                           |               | 2,451  |   |      | —       |   |   | 2,451   |  
|Loss (gain)
                    on derivative financial instruments         |  |                            | 235           |                           |               | (1,913 | ) |      | (669    | ) |   | (1,913  | )
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|(Loss)
                    income before income taxes and minority interest |  |                            | (2,693        | )                         |               | (9     | ) |      | 6,493   |   |   | 7,707   |  
|(Benefit)
                    provision for income taxes                    |  |                            | (364          | )                         |               | 653    |   |      | 258     |   |   | 1,208   |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|(Loss)
                    income before minority interest                  |  |                            | (2,329        | )                         |               | (662   | ) |      | 6,235   |   |   | 6,499   |  
|Minority
                    interest in Joint Venture loss (income)        |  |                            | 351           |                           |               | 301    |   |      | (56     | ) |   | 301     |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|Net (loss)
                    income                                       |  | $                          | (1,978        | )                         | $             | (361   | ) | $    | 6,179   |   | $ | 6,800   |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|Distribution declared per unit in respect of the
                    period |  | $                          | 0.45          |                           | $             | 0.45   |   | $    | 1.35    |   | $ | 1.35    |  
|                                                                            |  |                            |               |                           |               |        |   |      |         |   |   |         |  
|Total
                    vessel days                                       |  |                            | 1,012         |                           |               | 920    |   |      | 2,822   |   |   | 2,570   |  
|Days
                    worked                                             |  |                            | 897           |                           |               | 844    |   |      | 2,686   |   |   | 2,417   |  
|Drydocking
                    days                                         |  |                            | 61            |                           |               | 69     |   |      | 67      |   |   | 121     |  
|Net
                    utilization                                         |  |                            | 89            | %                         |               | 92     | % |      | 95      | % |   | 94      | %
|Average
                    time charter equivalent rate                    |  | $                          | 38,126        |                           | $             | 38,544 |   | $    | 39,372  |   | $ | 38,148  |  

25

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Three Months Ended September 30, 2007 Compared to
        Three Months Ended September 30, 2006

Voyage Revenue.
        Voyage revenue was $45.6 million for the three months ended September 30, 2007, an increase
        of $7.1 million, or 18%, as compared to $38.5 million for the three months ended September
        30, 2006. The addition of the ATB Freeport, which was placed in service in July
        2007, contributed an additional $3.5 million in revenues during the quarter ended September
        30, 2007 compared to the quarter ended September 30, 2006. Increases in charter rates on
        the remaining fleet, and fuel and other costs passed through to our customers, together
        accounted for approximately $4.2 million of the increase. Contracts of affreightment and
        consecutive voyage charters generally provide for fuel escalation charges that are designed
        to protect us against increases in fuel prices. These charges generally increase revenue
        but do not contribute to our profitability. Fuel escalation provision charges were $3.6
        million for the three months ended September 30, 2007 compared to $2.2 million for the
        three months ended September 30, 2006. Increases in days worked on the remaining fleet for
        the three month period ended September 30, 2007 contributed an additional $2.9 million to
        revenue. Partially offsetting these increased amounts was a decrease of $3.5 million due to
        the scheduled drydocking of the Baltimore and the extension of its out of service
        period due to the damage it sustained while in the shipyard after leaving the drydock
        during Hurricane Dean.

Vessel Operating
        Expenses. Vessel operating expenses were $16.8 million for the three months ended
        September 30, 2007, an increase of $0.3 million, or 2%, as compared to $16.5 million for
        the three months ended September 30, 2006. The addition of the ATB Freeport
        accounted for additional vessel operating expenses of $2.0 million. Wages and benefits
        increased vessel operating expenses approximately $0.6 million due to new union agreements.
        In the current quarter, we reached agreements with our two maritime unions. These
        agreements are expected to increase personnel related expenses approximately $3.0 million
        on an annualized basis when compared to the levels under the expired contracts. Offsetting
        these increases were decreases in repairs and maintenance and supplies of $1.7 million and
        $0.7 million respectively. As a percentage of revenue, vessel operating expenses were 36.8%
        for the three months ended September 30, 2007 compared to 42.9% for the three months ended
        September 30, 2006. Improvements in vessel operating expenses as a percentage of revenue
        were due to lower repairs and maintenance expenses in the current period, partially offset
        by the impact of the ATB Freeport. The ATB Freeport experienced higher vessel
        operating expenses as a percentage of revenues in its initial voyages. We expect vessel
        operating expenses as a percentage of revenue to improve in future periods on the ATB
        Freeport, while repairs and maintenance are likely to return to historical
        levels.

Voyage Expenses.
        Voyage expenses were $11.4 million for the three months ended September 30, 2007, an
        increase of $5.4 million, or 91%, as compared to $6.0 million for the three months ended
        September 30, 2006. This increase was driven predominantly by higher fuel and port charges
        totaling $4.1 million. The higher fuel and port charges were partially due to the New
        York and Jacksonville trading under a higher percentage of spot charters
        compared to time charters in the current period. Under a time charter, the charterer is
        responsible for such voyage expenses. The rates we charge under spot charters take account
        of the fact that we are responsible for voyage expenses. The ATB Freeport
        contributed $1.2 million of the increase in voyage expenses as well. As a percentage of
        revenue, voyage expenses were 24.9% for the three months ended September 30, 2007 compared
        to 15.5% for the three months ended September 30, 2006 primarily due to our bearing more
        voyage expenses as a result of our increase in spot charters. Voyages expenses are likely to
        increase as a percentage of revenue as we expect to derive a greater percentage of our
        revenue from spot charters.

General and
        Administrative Expenses. General and administrative expenses were $3.7 million for each
        of the three months ended September 30, 2007, and September 30, 2006, as higher expenses of
        the Joint Venture offset lower professional fees in the quarter.

Depreciation and
        Amortization. Depreciation and amortization was $9.8 million for the three months ended
        September 30, 2007, an increase of $1.6 million, or 20%, compared to $8.2 million for the
        three months ended September 30, 2006. Approximately $0.8 million of the increase is
        attributable to the additions of the ATB Freeport, which was completed in June 2007
        and placed into service in July 2007 at a cost of $91.5 million plus $7.8 million of
        capitalized interest. The ATB Freeport is being amortized to its salvage value over its
        expected useful life of 30 years which will increase depreciation and
        amortization expense by approximately $3.2 million annually. The remaining increase is due
        to the timing of scheduled drydocks. The $8.6 million received from Hess over the term of
        the Support Agreement for our ITBs will reduce the cost basis of our ITBs and therefore
        decrease our annual depreciation expense by approximately $1.2 million for the remaining
        life of the vessels.

Interest Expense.
        Interest expense was $8.8 million for the three months ended September 30, 2007, an
        increase of $3.2 million, compared to $5.6 million for the three months ended September 30,
        2006. The increase is attributable to a higher average outstanding debt balance during the
        third quarter of 2007 coupled with an increase in interest rates and amortization of debt
        financing fees. Interest expense for the three months ended September 30, 2007 and 2006
        does not include capitalized interest on the construction of the ATBs of $1.7 million and
        $1.2 million, respectively. In July 2007, the ATB Freeport was placed into service,
        and the capitalization of interest attributable to financing the ATB Freeport
        ceased. The average effective interest rate for both the three months ended September 30,
        2007 and 2006, excluding interest incurred by the Joint Venture, was approximately 10%.
        Interest incurred by the Joint Venture of $2.1 million and $0.7 million for the quarters
        ended September 30, 2007 and 2006 respectively, is fully capitalized and included in
        construction in progress.

26

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Interest Income.
        Interest income, consisting of interest earned on our invested balances, was $2.5 million
        for the three months ended September 30, 2007, an increase of $0.5 million, compared to
        $2.0 million for the three months ended September 30, 2006. The increase relates to the
        interest earned on our restricted cash accounts. The restricted cash accounts consist of
        two escrow accounts which were established as part of our 2006 debt and equity financings
        to fund the construction of at least three new ATBs and our remaining committed equity
        contributions to the Joint Venture. Interest income will decrease as funds in these escrow
        accounts are used to fund the construction of the three new ATBs and our equity
        contributions to the Joint Venture. We currently anticipate that we will use approximately
        $125.6 million of the remaining $155.2 million escrowed amounts during the twelve months
        ending September 30, 2008.

Loss on Derivative
        Financial Instruments. The Joint Venture recorded a loss of $0.2 million in the current
        period in connection with the interest rate cap it had entered into in April
        2007.

Provision for Income
        Taxes. We are generally not responsible for federal and state income taxes, and our
        profits and losses are passed directly to our members for inclusion in their respective
        income tax returns. Certain of our subsidiaries are corporate subsidiaries and therefore subject to federal, state and
        local income taxes. The benefit for income taxes for the three months ended September 30,
        2007 was $0.4 million, compared to a provision of $0.7 million for the three months ended
        September 30, 2006. The decrease is attributable to a decrease in the pre-tax operating
        income at our corporate subsidiaries in the quarter due to costs associated with the start
        up and initial voyages of the ATB Freeport. In addition, certain operations
        associated with the management of the Joint Venture operate through subsidiaries organized
        as corporations. These subsidiaries incurred higher expenditures in 2007 than in 2006. We
        expect these subsidiaries to become profitable in the future.

Minority Interest in
        Joint Venture. For the three months ended September 30, 2007, we recorded minority
        interest in Joint Venture losses of $0.4 million compared to $0.3 million for the three
        months ended September 30, 2007, relating to the 60% of the Joint Venture owned by third
        parties.

Net Loss. The net
        loss for the three months ended September 30, 2007 was $2.0 million, an increase of $1.6
        million, compared to a net loss of $0.4 million for the three months ended September 30,
        2006. Operating income remained relatively constant, while interest expense net of interest
        income decreased pretax earnings by $2.8 million in the current period compared to the
        prior year period. The three months ended September 30, 2006 included a loss on
        extinguishment of debt of $2.5 million and an offsetting derivative gain of $1.9
        million.

Nine Months Ended September 30, 2007 Compared to
        Nine Months Ended September 30, 2006

Voyage Revenue.
        Voyage revenue was $133.3 million for the nine months ended September 30, 2007, an increase
        of $19.9 million, or 18%, as compared to $113.3 million for the nine months ended September
        30, 2006, due primarily to the addition of the Sea Venture and the ATB
        Freeport, which were placed in service in June 2006 and July 2007, respectively.
        These new vessels contributed approximately $13.8 million in revenues during the nine
        months ended September 30, 2007 compared to $3.7 million in revenues during the nine months
        ended September 30, 2006. Additionally, increases in charter rates on the remaining fleet
        and an increase in the costs that are predominantly passed through to our customers
        together added approximately $6.8 million of revenue. Charter rates were affected by fuel
        escalation provision charges of $7.9 million for the nine months ended September 30, 2007
        compared to $6.4 million for the nine months ended September 30, 2006. Charter rates were
        positively impacted by stronger spot market rates during the current nine month period.
        Increases in days worked on the remaining fleet for the nine month period ended September
        30, 2007 contributed an additional $6.5 million to revenue. Partially offsetting these
        increased amounts was a decrease of $3.5 million due to the scheduled drydocking of the
        Baltimore and the extension of its out of service period due to the damage it
        sustained while in the shipyard after leaving the drydock during Hurricane Dean.

Vessel Operating
        Expenses. Vessel operating expenses were $49.1 million for the nine months ended
        September 30, 2007, an increase of $4.6 million, or 10%, as compared to $44.5 million for
        the nine months ended September 30, 2006. The addition of the Sea Venture and the
        ATB Freeport accounted for additional operating expenses of $3.9 million, while
        increases in crew wages and benefits, apart from those of the Sea Venture and ATB
        Freeport, contributed an additional $1.9 million, due primarily to the new union
        contracts. Offsetting these increases were lower repairs and maintenance expenses of $1.0
        million and all other expenses of $0.2 million, net. As a percentage of revenue, vessel
        operating expenses decreased to 36.8% for the nine months ended September 30, 2007 from
        39.2% for the nine months ended September 30, 2006. Improvements in vessel operating
        expenses as a percentage of revenue were due primarily to lower repairs and maintenance
        expenses in the current period, partially offset by the impact of the ATB Freeport.
        The ATB Freeport experienced higher vessel operating expenses as a percentage of
        revenues in its initial voyages. We expect vessel operating expenses of the ATB
        Freeport as a percentage of revenue to improve in future periods, while repairs and
        maintenance are likely to return to historical levels.

27

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Voyage Expenses.
        Voyage expenses were $27.5 million for the nine months ended September 30, 2007, an
        increase of $6.3 million, or 30%, as compared to $21.2 million for the nine months ended
        September 30, 2006, driven predominantly by higher fuel and port charges totaling $3.7
        million. Higher fuel and port charges were due to an increase in our vessels trading in the
        spot market rather than under time charters. Under a time charter, the charterer is
        responsible for such voyage expenses. The Sea Venture and the ATB Freeport
        contributed $2.7 million of the increase in voyage expenses. As a percentage of revenue,
        voyage expenses increased to 20.6% for the nine months ended September 30, 2007 from 18.7%
        for the nine months ended September 30, 2006.

General and
        Administrative Expenses. General and administrative expenses were $11.7 million for the
        nine months ended September 30, 2007, an increase of 2.0 million, or 20%, as compared to
        $9.7 million for the nine months ended September 30, 2006. This planned increase is
        primarily attributable to an increase in personnel related expenses of $1.4 million and
        higher administrative expenses of the Joint Venture. The planned increases in personnel
        were incurred primarily to manage our growth, including the construction of tankers and
        ATBs.

Depreciation and
        Amortization. Depreciation and amortization was $27.9 million for the nine months ended
        September 30, 2007, an increase of $4.9 million, or 21%, compared to $23.0 million for the
        nine months ended September 30, 2006. Approximately $2.6 million of the increase is
        attributable to the additions of the Sea Venture, which was acquired for $4.1
        million in November 2005 and placed in service in June 2006 upon completion of its
        drydocking, which cost approximately $9.9 million, and the addition of the ATB
        Freeport, which was completed in June 2007 and placed into service in July 2007 at a
        cost of $91.5 million plus $7.8 million of capitalized interest. Additional increases of
        $2.4 million are attributable primarily to the amortization of drydocking expenditures,
        which fluctuates based upon the timing and schedule of the drydockings.

Other Expense
        (Income). In connection with the settlement of a contract of affreightment, we
        recognized approximately $3.5 million in other income during the nine months ended
        September 30, 2007. We reached a settlement with a major oil and chemical customer to
        terminate a contract of affreightment under which the customer was obligated to purchase
        services for the transport of minimum freight volumes through late 2007 from a
        manufacturing facility that it sold. As a result, we received $3.5 million from the
        customer in exchange for releasing the customer from its future obligations under the
        contract of affreightment. Simultaneously, a new three year contract of affreightment at
        market rates with reduced volumes was agreed upon in principle with the same
        customer.

Interest Expense.
        Interest expense was $22.4 million for the nine months ended September 30, 2007, an
        increase of $13.3 million, compared to $9.1 million for the nine months ended September 30,
        2006. The increase is attributable to a higher average outstanding debt balance during the
        first nine months of 2007 as compared to the first nine months of 2006, coupled with an
        increase in interest rates and amortization of debt financing fees. Interest expense for
        the nine months ended September 30, 2007 and 2006 does not include capitalized interest
        related to the construction of the ATBs of $7.4 million and $2.5 million, respectively. In
        July 2007, the ATB Freeport was placed into service, and the capitalization of
        interest attributable to financing the ATB Freeport ceased. The average effective
        interest rate for the nine months ended September 30, 2007, excluding interest incurred by
        the Joint Venture, was approximately 10% compared to approximately 8% for the nine months
        ended September 30, 2006. Interest incurred by the Joint Venture of $6.0 million and $0.7
        million for the nine months ended September 30, 2007 and 2006 respectively, is fully
        capitalized and included in construction in progress.

Interest Income.
        Interest income, consisting of interest earned on our invested balances, was $7.7 million
        for the nine months ended September 30, 2007, an increase of $5.4 million, compared to $2.3
        million for the nine months ended September 30, 2006. The increase relates to the interest
        earned on our restricted cash accounts. The restricted cash accounts consist of two escrow
        accounts which were established as part of our 2006 debt and equity financings to fund the
        construction of at least three new ATBs and our remaining committed equity contributions to
        the Joint Venture. Interest income will decrease as funds in these escrow accounts are used
        to fund the construction of the three new ATBs and our equity contributions to the Joint
        Venture.

Gain on Derivative
        Financial Instruments. We recorded a gain of $0.2 million in connection with the
        foreign currency forward contracts that we entered into for the purchase of owner-furnished
        items relative to our newbuild ATB series. In May 2007, a payment scheduled for
        owner-furnished items relative to the fifth ATB being constructed was deferred until
        December 2007, which was beyond the expiration date of the related foreign currency forward
        contract, rendering the foreign currency contract for the item ineffective as a hedge. Due
        to this hedge ineffectiveness, a gain on derivative financial instruments was recognized in
        our Consolidated Statement of Operations. Additionally, the Joint Venture recorded a gain
        of $0.5 million in connection with the interest rate cap it had entered into in April 2007.
        The interest rate cap is an economic hedge of the value of the tankers to be constructed by
        our Joint Venture, but is not treated as a hedge for accounting purposes.

Provision for Income
        Taxes. We are generally not responsible for federal and state income taxes, since more
        than 90% of the gross revenue generated by us consists of certain types of “qualified
        revenue” (which includes dividends from subsidiary corporations and revenue from the
        transportation of minerals and natural resources, including gas, oil or products thereof).
        Please see “Risk Factors—Tax Risks” in our Annual Report on Form 10-K for
        the year ended December 31, 2006 for a detailed discussion of “qualified
        revenue”. We estimate that for the year ending December 31, 2007 approximately 92% of
        our gross revenue will be

28

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“qualified revenue”, compared to
        approximately 92% in the year ended December 31, 2006. Certain of our subsidiaries are corporate subsidiaries and therefore subject to federal, state and local income taxes. The provision for income taxes
        for each of the nine months ended September 30, 2007 and 2006 was $0.3 million and $1.2
        million, respectively. Increased revenues and lower expenses in the first quarter of 2007
        compared to the first quarter of 2006 were offset by higher expenditures in the second and
        third quarters of 2007 as compared to the second and third quarters of 2006. The increased
        expenditures related to the vessel operating expenses for the ATB Freeport that were
        incurred in connection with the completion of construction and testing of the vessel during
        the second quarter of 2007. In addition, certain operations associated with the management
        of the Joint Venture operate through subsidiaries organized as corporations. These
        subsidiaries incurred higher expenditures in 2007 than in 2006.

Minority
        Interest in Joint Venture. For the nine months ended September 30, 2007, we recorded
        minority interest in Joint Venture income of $0.1 million, relating to the 60% of the Joint
        Venture owned by third parties, compared to minority interest in Joint Venture loss of $0.3
        million for the nine months ended September 30, 2006. The terms of the joint venture
        agreement subordinate our interest to the interest of the minority investors. Distribution
        provisions in the joint venture agreement require the minority investors to receive their
        equity investment and a 15% return prior to any distributions to us. We expect to recover
        our $70.0 million of capital committed upon completion of the construction of the nine
        tankers. If economic or operating conditions change, it is possible that we may not recover
        all or a portion of the capital committed.

Net
        Income. The net income for the nine months ended September 30, 2007 was $6.2 million, a
        decrease of $0.6 million, compared to net income of $6.8 million for the nine months ended
        September 30, 2006. An increase in operating income of $5.6 million, resulting in large
        part from the $3.5 million contract settlement, and reduced income tax expense of $1.0
        million were offset by an increase in interest expense, net of interest income, of $8.0
        million in the current period compared to the prior year period. The nine months ended
        September 30, 2006 included a loss on extinguishment of debt of $2.5 million and an
        offsetting derivative gain of $1.9 million.

Liquidity and Capital Resources

Operating Cash Flows

Net cash
        provided by operating activities was $19.0 million for the nine months ended September 30,
        2007, compared to net cash provided by operating activities of $21.5 million for the nine
        months ended September 30, 2006. The decrease in operating cash flows of $2.5 million in
        the nine months ended September 30, 2007 compared to the same period in 2006 is primarily
        the result of an increase in working capital requirements in the current year of $6.0
        million compared to a decrease in working capital requirements in the prior year of $16.6
        million. The increase in working capital in 2007 is partially driven by the addition of the
        ATB Freeport. Offsetting the increase in working capital requirements was a $15.7
        million decrease in capitalized drydock expenditures, as the Sea Venture incurred
        significant drydock costs in the prior year before being placed into service in June of
        2006. A decrease of $0.6 million in net income was offset by higher non cash adjustments to
        income of $6.3 million in 2007 compared to 2006, driven by increased depreciation expense
        in 2007 due to higher drydock expenditures in prior years, and the addition of the ATB
        Freeport, offset by other adjustments to operating cash flows of $1.3
        million.

Investing Cash Flows

Net cash used in
        investing activities totaled $57.1 million for the nine months ended September 30, 2007, a
        decrease of $228.6 million, compared to net cash used of $285.7 million for the nine months
        ended September 30, 2006. In the nine months ended September 30, 2007, we made $82.5
        million of payments toward the construction of the ATBs and the Joint Venture made $28.2
        million of payments toward the construction of tankers. Of this $110.7 million, $55.8
        million was obtained from the restricted cash accounts and the balance was obtained through
        financing activities. Additionally, in the nine months ended September 30, 2007, the Joint
        Venture purchased a $100.0 million nine year interest rate cap effective April 1, 2007 for
        $1.9 million, including transaction fees. During the nine months ended September 30, 2006,
        net cash of $226.9 million was transferred to escrow accounts, the funds from which will be
        used to finance the construction of ATBs and the remainder of our capital commitment to the
        Joint Venture. We also made $50.7 million of progress payments toward the construction of
        the ATBs and the Joint Venture made $27.9 million of progress payments toward the
        construction of tankers in the nine months ended September 30, 2006.

The amounts
        received from or paid to Hess pursuant to the Hess Support Agreement were not recognized as
        revenue or expense but were deferred for accounting purposes throughout the term of the
        Support Agreement and reflected as a decrease to the purchase price of the ITBs in
        September 2007, which is the end of the Hess Support Agreement. Prior to such adjustment,
        they were included in cash flows from investing activities as advances from (payments to)
        Hess. If the rate for an ITB exceeded the support rate set forth in the Support Agreement,
        we paid the excess to Hess to reimburse Hess for any payments made to us by Hess under the
        Support Agreement. Once Hess had been fully reimbursed for all payments made under the
        Support Agreement, we would pay Hess 50% of any remaining excess. Payments to Hess, net of
        payments received from Hess, under the Support Agreement were $0.4 million for the nine
        months ended September 30, 2007 and $0.9 million for the nine months ended September 30,
        2006. For the period January 1, 2007 through September 13, 2007, the end of the Support
        Agreement, and for the nine months ended September 30, 2006, five ITBs

29

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were covered by the Support Agreement. We had a payable
        to Hess under the Support Agreement of $2.9 million at September 30, 2007.

Financing Cash Flows

Net cash
        provided by financing activities was $50.6 million for the nine months ended September
        30, 2007, a decrease of $230.7 million, compared to net cash provided by financing
        activities of $281.3 million for the nine months ended September 30, 2006. In the nine
        months ended September 30, 2007, we borrowed $54.0 million under our delayed draw term loan
        and made scheduled repayments of $2.2 million. The Joint Venture received $9.7 million from
        the Joint Venture Investors and borrowed $14.3 million under its revolving credit facility.
        In the nine months ended September 30, 2006, prior to refinancing our credit facility, we
        borrowed $25.0 million under the revolver portion of our then existing credit facility to
        finance the construction of the ATBs and to fund a $5.0 million deposit for a shipyard slot
        to build tankers, which was subsequently credited against our $70.0 million capital
        commitment to the Joint Venture. We also made scheduled debt payments of $0.9 million. At
        refinancing, we received gross proceeds of $350.0 million from the debt facilities and
        $79.1 million from the equity offering (including approximately $1.6 million that our
        general partner was required to contribute to maintain its 2% interest in us). These
        proceeds were used to pay our then current credit facility of $127.1 million and the $25.0
        million outstanding revolver balance. Equity issuance fees of $2.8 million and deferred
        financing costs of $11.6 million were also paid from the proceeds. Additionally, the Joint
        Venture received $27.6 million from the Joint Venture Investors and paid $14.1 million in
        equity offering costs and deferred financing costs of $13.0 million. Subsequent to the
        refinancing, the Joint Venture borrowed $13.9 million under its revolving credit facility
        and we made scheduled debt repayments of $0.6 million under its new credit facility.
        Additionally, in the nine months ended September 30, 2006, $1.9 million was provided from
        the proceeds received on the termination of hedge and we paid $21.0 million of
        distributions to partners.

Credit Facility

We amended
        certain financial covenants in our senior credit facility, effective June 29, 2007, to
        eliminate certain projected financial covenant compliance issues, for which we paid a fee
        of $0.2 million. The primary changes were to increase the amount of ATB Freeport
        construction expenditures excluded from the calculation of certain covenants and to
        increase the leverage ratio covenants for the fourth quarter of 2007 and 2008.

Payments of Distributions

On November 1,
        2007, the Board of Directors of our general partner declared our regular cash distribution
        for the third quarter of 2007 of $0.45 per unit. The distribution will be paid on all
        common, subordinated and general partner units on November 15, 2007 to all unitholders of
        record on November 9, 2007. The aggregate amount of the distribution will be $8.4
        million.

The Board of
        Directors of our general partner also declared quarterly distributions to unitholders of
        $0.45 per unit in respect to each of the quarters ended June 30, 2007, March 31, 2007 and
        December 31, 2006 to unitholders of record on August 10, 2007, May 11, 2007 and February
        12, 2007, respectively. These distributions were paid on August 15, 2007, May 15, 2007 and
        February 15, 2007, respectively.

Ongoing Capital Expenditures

Marine
        transportation of refined petroleum, petrochemical and commodity chemical products is a
        capital intensive business, requiring significant investment to maintain an efficient fleet
        and to stay in regulatory compliance. Both domestic (U.S. Coast Guard) and international
        (International Maritime Organization) regulatory bodies require that our vessels be
        drydocked for major repair and maintenance at least twice every five years. 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 our ITBs to be drydocked
        once every five years, with a mid-period underwater survey in lieu of a drydock. We were
        recently advised by the U.S. Coast Guard that U.S. flagged non-double hulled tank vessels
        that are over 15 years in age and trade internationally will not, consistent with
        International Maritime Organization regulations, be eligible to participate in the UWILD
        Program. However, the U.S. Coast Guard has advised us that it will consider for
        participation in the UWILD Program non-double hulled tank vessels that are over 15 years of
        age but only trade domestically. If we are required to conduct a second drydock in each
        five year period rather than rely on an underwater survey, we estimate that our ITBs will
        be out of service for approximately 10 to 20 days and the second drydock will cost
        approximately $1.0 million to $2.0 million. This longer out of service period and increased
        drydock expenses as compared to the time required for and the cost of conducting an
        underwater survey could adversely affect our business, financial condition, results of
        operations and our ability to pay the minimum quarterly distribution on our outstanding
        units. Even if the U.S. Coast Guard allows us to continue in the UWILD Program, we will
        need to conduct an enhanced survey, which will result in the vessel being off-hire, and not
        earning revenue, for an additional seven days each time a survey is conducted. In addition,
        vessels may have to be drydocked in the event of accidents or other unforeseen damage.
        Periodically, we also make expenditures to acquire or construct additional tank vessel
        capacity and/or to upgrade our overall fleet efficiency, and in the future may make capital
        expenditures to retrofit vessels to meet the requirements of OPA 90.

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The
        Baltimore and the Philadelphia were scheduled for drydock in 2007 at a total
        estimated cost of approximately $12.0 million. The Baltimore completed its
        drydocking in August 2007, however it remained out of service until October 2007 due to the
        time needed to repair the damages it sustained after leaving drydock during Hurricane Dean.
        The Philadelphia was in drydock at September 30, 2007. During 2006, the parcel
        tankers Charleston, Chemical Pioneer and Sea Venture and the
        ITBs Groton and Mobile were placed in drydock. The Charleston drydock
        was completed in July 2006 at a cost of $5.1 million, the Chemical Pioneer drydock
        was completed in December 2006 at a cost of $5.5 million and the initial Sea Venture
        drydock was completed in June 2006 at a cost of $9.9 million. The Sea Venture
        drydock was an extensive drydocking that brought the vessel to our operational standards
        followings its acquisition. The ITB Groton was completed in August at a cost of $5.1
        million and the ITB Mobile was completed in December at a cost of $5.1 million. For
        future drydockings, we estimate that drydocking the ITBs will cost approximately
        $6.0 million per vessel, the parcel tanker and Houston drydocks will cost
        approximately $3.5 million to $6.0 million per vessel, the ATB drydockings will cost
        between $1.0 million and $2.0 million per vessel and the new tanker drydocks will cost
        between $3.5 million and $4.0 million per vessel. While drydocked, each of our ITBs will be
        out of service for approximately 50 to 70 days, each parcel tanker and the Houston
        will be out of service for approximately 35 to 60 days, each ATB unit will be out of
        service for approximately 25 days and each new tanker will be out of service for
        approximately 35 to 40 days. If the U.S. Coast Guard does not allow our ITBs to continue in
        the UWILD Program or if we chose to pursue chartering opportunities precluded by the UWILD
        program, we estimate that the required second drydock will require our ITBs to be out of
        service for approximately 10-20 days and will cost approximately $1.0 million to $2.0
        million. At the time we drydock these vessels, the actual cost and time of drydocking may
        be higher due to inflation and other factors as well as the availability of shipyards to
        perform the drydock. In addition, vessels in drydock will not generate any income, which
        will reduce our revenue and cash available for distribution and to pay interest on, and
        principal of, debt.

In calculating
        cash available to pay distributions, our partnership agreement requires our general partner
        to deduct from basic surplus each quarter estimated maintenance capital expenditures as
        opposed to actual maintenance capital expenditures in order to reduce disparities in basic
        surplus caused by fluctuating maintenance capital expenditures, such as retrofitting or
        drydocking. Our annual estimated maintenance capital expenditures for purposes of
        calculating basic surplus were increased from $19.6 million in 2006 to $20.9 million
        in 2007. This amount is based on our current estimates of the amounts of expenditures we
        will be required to make in the future, which we believe to be reasonable. The amount of
        estimated maintenance capital expenditures deducted from basic surplus is subject to review
        and change by the board of directors of our general partner at least once a year, with any
        change approved by the conflicts committee.

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

|                                                             |  |                                                     |         |      |   |        | 
|------------------------------------------------------------ |  | --------------------------------------------------- | ------- | ---- | - | ------ | 
|                                                             |  | Nine Months Ended
                    September 30, |        
|                                                             |  |                                                     |        
|                                                             |  | 2007                                                |         | 2006 |  
|                                                             |  |                                                     |         |      |  
|                                                             |  |                                                     |         |      |   |        | 
|Maintenance
                    capital expenditures         |  | $                                                   | 6,045   |      | $ | 20,932 | 
|Expansion
                    capital expenditures - ATBs    |  |                                                     | 79,657  |      |   | 37,866 | 
|Expansion
                    capital expenditures - Tankers |  |                                                     | 38,666  |      |   | 29,876 | 
|                                                             |  |                                                     |         |      |  
|Total capital expenditures                                   |  | $                                                   | 124,368 |      | $ | 88,674 | 
|                                                             |  |                                                     |         |      |  

We are currently
        conducting a study to assess strategic alternatives to assess the economic feasability of  our ITBs continuing to trade
        past their current OPA 90 lives, including, by retrofitting the ITBs with an internal
        double hull, repurposing the ITBs to carry products other than petroleum products, or a
        combination of the two. We believe that there are significant opportunities to repurpose or
        retrofit these vessels so that they may continue trading past their OPA 90 lives, which
        range from 2012 to 2014. We may choose to make these adjustments to the ITBs before their
        current OPA 90 expiration date – likely concurrent with a regularly scheduled drydock
        – if we believe market conditions to be favorable. We have received approval from the
        United States Coast Guard that our current plans to retrofit the ITB Philadelphia to
        add a double hull in order to bring the vessel into compliance with OPA 90 can be
        substantially performed in a foreign shipyard without losing its Jones Act classification.
        Although this approval and similar approvals given to competitors by the United States
        Coast Guard are being challenged in the courts, we believe such approvals will be upheld.
        It is our understanding that a competitor has completed the retrofit of one vessel and
        begun retrofitting a second vessel based upon such approvals received from the United
        States Coast Guard. We currently estimate that performing this work in a foreign shipyard,
        if done in conjunction with the required drydock of the vessel, will cost approximately
        $15.0 million in current dollars, which is substantially less than the cost of such work in
        a U.S. shipyard. This estimate is subject to fluctuation as a result of changes in either
        currency exchange rates and/or raw materials costs. If we retrofit this vessel in a foreign
        shipyard, we estimate that the vessel will be out of service approximately 4-6 months for
        the combined retrofit and drydock and it will decrease vessel capacity by approximately
        18%; however, we believe we could reduce this reduction by performing additional work in
        U.S. shipyards, although the cost would be higher. The reduction in

31

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capacity will negatively impact the charter rates we
        would receive in respect of these retrofitted vessels. We have also begun discussions with
        various customers to possibly repurpose one or more ITBs to carry non-petroleum products.
        The cost of such repurposing will vary depending on the ultimate cargo type the ITB will be
        modified to carry. Preliminary estimates are that such repurposing, which we expect would
        occur in conjunction with a regularly scheduled drydock, would add approximately $5.0
        million to $7.0 million of cost and add approximately 30 to 45 days of off-hire time for
        the vessel. The cost of repurposing or retrofitting our ITB units compared to the cost of
        newbuildings, market conditions, charter rates, customer acceptance and the availability
        and cost of financing will be major factors in determining the OPA 90 compliance plan that
        we ultimately implement and the timing thereof.

Liquidity Needs

Our primary
        liquidity needs are to make scheduled debt and interest payments, to pay our quarterly
        distributions, to fund general working capital requirements and to pay expansion and other
        maintenance capital expenditures. Expansion capital expenditures are primarily for the
        purchase or construction of vessels, including the ATB units and tankers currently under
        construction. Maintenance capital expenditures include drydocking expenditures and would
        include the cost of bringing our vessels into compliance with OPA 90. Our primary sources
        of funds for our needs will be cash flows from operations, borrowings under our amended and
        restated credit facility and other debt or equity financings.

Our liquidity
        has been, and may continue to be, affected by several factors, some of which are outside
        our control, including:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Cost overruns on the construction of the
                    ATB Freeport of approximately $24.5 million from the amount estimated at
                    the time of the August 2006 refinancing resulted in additional borrowings under
                    our credit facility, thereby reducing availability under the credit facility to
                    meet our ongoing liquidity requirements, and increased interest
                    expense.                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | • | The potential for reduced operating margins
                    from our ITB fleet due to the expiration of the Hess Support Agreement in
                    September 2007, which provided us minimum rates on our vessels the increased
                    competition for long-term charters from newer vessels, possible lower rates in
                    the spot market due to an increasing supply of vessels, and higher operating
                    expenses of, and less demand for, our ITBs due to their age.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | • | Increased vessel operating expenses due to
                    new collective bargaining agreements with the two maritime unions that cover
                    all of our seagoing personnel. The two agreements, which we believe follow
                    agreements reached by other vessel operators in our industry, are expected to
                    increase vessel personnel expenses by approximately $3 million in 2008 when
                    compared to the levels under the expired contracts.           

To the extent
        the foregoing or other factors negatively impact our future operating results, our
        liquidity and available cash will be adversely affected.

Our partnership
        agreement requires that we distribute our available cash to unitholders on a quarterly
        basis. Available cash generally means, for each fiscal quarter, all cash on hand at the end
        of the quarter:

| |   |                                                                                             |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | less the amount of cash reserves established
                    by our general partner to:
| |   |                                                                                            
| |   | ¡                                                                                           | provide for the proper conduct of our
                    business (including reserves for future capital expenditures, payments of
                    interest on, and principal of, our indebtedness and for our anticipated credit
                    needs);
| |   |                                                                                             |                                                                                                                                                                                                                                                                   
| |   | ¡                                                                                           | comply with applicable law, any of our debt
                    instruments or other agreements; or                                                                                                                                                               
| |   |                                                                                             |                                                                                                                                                                                                                                                                   
| |   | ¡                                                                                           | provide funds for distributions to our
                    unitholders and to our general partner for any one or more of the next four
                    quarters;                                                                                              

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | plus all cash on hand on the date of
                    determination of available cash for the quarter resulting from working capital
                    borrowings made after the end of the quarter for which the determination is
                    being made. Working capital borrowings are generally borrowings that will be
                    made under our credit facility and in all cases are used solely for working
                    capital purposes or to pay distributions to partners.

Currently, our
        common units have the right to receive distributions of available cash in an amount equal
        to the minimum quarterly distribution of $0.45 per quarter, plus any arrearages in the
        payment of the minimum quarterly distribution on the common units from prior quarters,
        before any distributions of available cash may be made on any subordinated units.
        Distribution arrearages do not accrue on the subordinated units. The purpose of the
        subordinated units is to increase the likelihood that during the subordination periods
        there will be available cash to pay the minimum quarterly distribution on the common units.
        Our common unitholders currently receive $5.1 million per quarter and our subordinated
        unitholders receive $3.3 million per quarter. There can be no assurance that our available
        cash will be adequate to pay the minimum quarterly distribution on the common and
        subordinated units in the future. The subordinated units will convert into common units at
        specified times beginning December 31, 2007 if specified tests are met

32

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The agreements
        governing our indebtedness prohibit us from paying distributions following a default. In
        addition, the indenture under which our senior notes were issued provides that whenever our
        fixed charge coverage ratio (as defined in the indenture) is less than 1.75 to 1 for the
        last year, we cannot pay distributions that in aggregate during any period when our fixed
        charge coverage ratio is less than 1.75 to 1 an amount in excess of $50.0 million plus the
        proceeds of certain equity issuances. The minimum quarterly distribution per quarter that
        we currently pay is $8.4 million. Accordingly, we will be prohibited by the indenture from
        paying distributions except out of proceeds of certain equity issuances if our fixed charge
        coverage ratio is less that 1.75 to 1 for more than five quarters.

We continue to
        monitor our liquidity requirements and levels closely to ensure we have adequate liquidity
        to meet our ongoing working capital requirements, and we are continuing to examine our
        capital structure and other alternatives with the goal of increasing liquidity, including
        taking actions which could result in a reduction in the amount of the quarterly
        distribution paid on our subordinated units. Our inability to adequately address any
        liquidity issues that may arise in the future could impact our ability to pay the minimum
        quarterly distribution in full. The full minimum quarterly distribution on the common units
        of $0.45 will be paid prior to the payment of any distribution on our subordinated
        units.

Please see
        “Risk Factors—Risks Inherent in Our Business” in our Annual Report on
        Form 10-K for the year ended December 31, 2006 and “Part II. Item 1A. Risk
        Factors” of this Quarterly Report on Form 10-Q for a detailed discussion of our
        liquidity requirements and the events that could impact our liquidity.

Please see the
        section titled “Cash Distribution Policy” in Part II, Item 5., “Market
        for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
        Equity Securities”, in our Annual Report on Form 10-K for the year ended December 31,
        2006 for a detailed discussion of our policies and conditions regarding cash distributions
        and the conversions of subordinated units into common units.

Contractual Commitments and
        Contingencies

In 2006, we
        entered into a contract with Manitowoc Marine Group (“MMG”) for the
        construction of four barges, each of which is specified to have a carrying capacity of
        approximately 156,000 barrels at 98% of capacity. However, we have the option to cancel the
        fourth barge prior to January 15, 2008 (the “Cancellation Option”). In
        connection with extending the Cancellation Option, we agreed to extend the delivery date to
        August 2010 (and later under certain circumstances) and to increase the cost of the vessel,
        depending on the final delivery date. If the delivery date is not extended past December
        31, 2010, the maximum amount of additional cost (excluding certain price escalators) would
        be approximately $3.7 million. We estimate the total cost for this ATB will be
        approximately $71.5 million (subject to modifications, changes in the cost of steel and the
        actual delivery date). If the Cancellation Option is exercised, we will forfeit all amounts
        previously paid for this barge (which aggregate $3.8 million), and may not be able to
        recover deposits for owner-furnished equipment for this ATB unit (which aggregate $1.2
        million). Excluding any possible recoveries, the total charge to expense for cancelling
        this ATB unit would be $5.6 million. In 2006, we also entered into a contract for the
        construction of three tugs with Eastern Shipbuilding Group, Inc. (“Eastern”),
        which will be joined with the barges to complete three new ATB units. The contract with
        Eastern also includes an option to construct and deliver an additional tug, which must be
        exercised by January 15, 2008. The total construction cost anticipated for the first three
        new ATB units is approximately $66.0 million to $69.0 million per unit (subject to
        modifications and changes in the cost of steel), in each case inclusive of owner furnished
        equipment, but exclusive of capitalized interest. The capitalized interest as of September
        30, 2007 relating to this series of ATBs is $5.6 million. We expect that the first two of
        these ATB units will be completed in August 2008 and November 2008, respectively, and the
        second two of these ATB units to be completed in August 2009 and, if not cancelled, August
        2010 (or later under certain circumstances). As of September 30, 2007, we made payments
        totaling $76.7 million related to these newbuilds and had in escrow approximately $111.1
        million, plus $13.9 million of funds drawn from the escrow account in anticipation of
        payments due in the fourth quarter of 2007. These escrowed amounts represent our estimated
        cost to substantially complete construction of the first three ATBs.

We have
        collective bargaining agreements with two maritime unions, the American Maritime Officers
        union, which covers the officers of our vessels, and the Seafarers’ International
        Union, which covers all of the other seagoing personnel, which expired in the second
        quarter of 2007. In September 2007, we reached an agreement with the American Maritime
        Officers union. The agreement is retroactive to May 1, 2007 and expires on April 30, 2010.
        A five year agreement with the Seafarers’ International Union was reach in October
        2007. The two agreements, which we believe are consistent with industry trends, provide for
        annual wage and benefit increases. These are our only two collective bargaining agreements
        to which we are subject.

On October 25,
        2007, Products Investor and NASSCO contractually accelerated the delivery dates for the
        first five tankers that NASSCO is constructing for Products Investor, our Joint Venture.
        The revised delivery schedule is for the first tanker to be delivered in the first quarter
        of 2009, the second tanker to be delivered in the fourth quarter of 2009, the third and
        fourth tankers to be delivered in 2010, and the fifth tanker to be delivered in 2011.
        NASSCO’s previous request to accelerate the delivery of tankers six through nine
        remains outstanding and Product Carriers and the Joint Venture have until January 2, 2008
        to respond to this acceleration request. The contract amendment also amended the dates for
        both liquidated damages for late delivery and incentive for early

33

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delivery. If Product Carriers and the Joint Venture do
        not agree to the acceleration of delivery of the tankers, then NASSCO has the right to use
        their additional capacity to construct vessels for other third parties. However, we
        believe any such use of additional capacity should not affect the delivery dates of
        vessels six through nine.

New Accounting Pronouncements

As of January 1,
        2007, we adopted the provisions of Financial Accounting Standards Board
        (“FASB”) Interpretation Number (“FIN”) 48, “Accounting for
        Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” See
        Note 2, Adoption of New Accounting Policy-Income Taxes, in the attached Unaudited
        Condensed Consolidated Financial Statements for a full description of our accounting policy
        related to the accounting for income tax contingencies. As a result of the implementation
        of FIN 48, we recognized no material adjustment in the liability for unrecognized income
        tax benefits and all such liabilities are now classified as long-term, including the
        associated accrued interest and penalties.

In September
        2006, the FASB issued FASB Statement No. 157, “Fair Value Measurement,”
        (“FAS No. 157”) effective for fiscal years beginning after November 15, 2007.
        FAS No. 157 defines fair value, establishes a framework for measuring fair value and
        expands disclosures about fair value measurements. This statement does not require any new
        fair value measurements, but simplifies and codifies related guidance within generally
        accepted accounting principles. FAS No. 157 applies under other accounting pronouncements
        that require or permit fair value measurements. Our financial statements require the use of
        various fair value measurements and we are currently reviewing the impact of this
        pronouncement upon its adoption.

In February
        2007, the FASB issued FASB Statement No. 159, “The Fair Value Option for Financial
        Assets and Financial Liabilities, including an amendment of FASB Statement No. 115,”
        (“FAS No. 159”) effective as of the beginning of fiscal years beginning after
        November 15, 2007. FAS No. 159 permits entities to choose to measure many financial
        instruments and certain other items at fair value at specified election dates. A business
        entity shall report unrealized gains and losses on items for which the fair value option
        has been elected in earnings at each subsequent reporting date. Under FAS No. 159 the fair
        value option:

| |    |                                                                                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | May be applied instrument by instrument, with
                    a few exceptions, such as investments otherwise accounted for by the equity
                    method
| | 2. | Is irrevocable (unless a new election date
                    occurs)                                                                                                  
| | 3. | Is applied only to entire instruments and not
                    to portions of instruments.                                                                           

We are currently
        reviewing the impact of this pronouncement upon its adoption.

Related Party Transactions

Hess
        Support

Hess is one of
        our significant customers. Voyage revenues earned from charters with Hess (which do not
        include amounts received under the Support Agreement) for the three months ended September
        30, 2007 and 2006 were $3.2 million and $3.2 million, respectively. For the nine months
        ended September 30, 2007 and 2006, voyage revenues from Hess were $11.8 million and $9.6
        million, respectively. We had a receivable from Hess under the Support Agreement of $0.1
        million at December 31, 2006. At September 30, 2007, we had a payable due to Hess of $2.9
        million.

General
        Partner

General and
        administrative expenses, including shore side employee expenses, and wages and benefits for
        crew members are incurred directly by our general partner. These amounts are reimbursable
        by us pursuant to the partnership agreement. Reimbursable amounts expensed by us were $13.7
        million and $11.7 million, respectively, for the three months ended September 30, 2007 and
        2006 and $40.5 million and $34.1 million, respectively, for the nine months ended September
        30, 2007 and 2006.

New York
        Office

On September 23,
        2005, we entered into a ten-year lease for office space for our New York City office. We
        sublease 75% of the leased space to certain companies affiliated with our Chairman and
        Chief Executive Officer. The affiliated companies pay their portion of the rent in advance
        of our making the rental payment. We have provided a letter of credit totaling $0.2 million
        to secure final payments of the lease commitment. We have been reimbursed 75% of the cost
        of providing the letter of credit and have received a guaranty from our Chairman in the
        event of any default of the lease, including that which would require drawdown of the
        letter of credit. For the three months ended September 30, 2007 and 2006, we paid $104,000
        and $99,000, respectively, in connection with the lease and received $78,000 and $74,000,
        respectively, from our related parties. For the nine months ended September 30, 2007 and
        2006, we paid $343,000 and $165,000, respectively, in connection with the lease and
        received $257,000 and $123,000, respectively, from our related parties.

34

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USS Product
        Manager LLC

USS Product
        Manager LLC (“Product Manager”), our wholly-owned subsidiary, manages the
        construction and operation of the tankers for the Joint Venture, for which it will receive
        the following, subject to certain specified limitations:

| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | an oversight fee of $1.0 million per tanker,
                    payable ratably over the course of construction of such tanker;                                                                                    
| | • | a management fee of $1.0 million per year for
                    each completed tanker that is operated by the Joint Venture;                                                                                      
| | • | a delivery fee of up to $0.75 million per
                    tanker, depending on the delivery date and cost of construction; and                                                                                  
| | • | a sale fee of up to $1.5 million per tanker
                    upon its sale to us or a third party, depending on the price obtained and
                    whether a charter meeting specified terms is in place.

The management
        agreement between Product Manager and the Joint Venture has an initial term of 10 years,
        subject to early termination under certain circumstances. The obligations under the
        management agreement will be performed by employees of US Shipping General Partner LLC, our
        general partner. Certain members of our management are expected to devote significant time
        to the management and operation of the Joint Venture. For the three and nine months ended
        September 30, 2007, we recorded $0.1 million and $0.2 million, respectively, in income
        related to this management agreement; however this amount was eliminated in
        consolidation.

The
        Blackstone Group and Other Parties (the “Joint Venture
        Investors”)

As a result of
        the formation of the Joint Venture, we consider the Joint Venture Investors to be related
        parties. For the three and nine months ended September 30, 2007, the Joint Venture paid
        interest on the Revolver totaling $1.6 million and $4.0 million, respectively, to the Joint
        Venture Investors, and $0.7 million for the three months period ended September 30,
        2006.

FORWARD-LOOKING STATEMENTS

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

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

| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | forecasts of our ability to make cash
                    distributions on our units and to pay interest on, and principal of, our
                    indebtedness;                                                             
| | • | planned capital expenditures and availability
                    of capital resources to fund capital expenditures;                                                                                                             
| | • | future supply of, and demand for, refined
                    petroleum products;                                                                                                                                                
| | • | potential reductions in the supply of tank
                    vessels due to restrictions set forth by OPA 90 and 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 OPA
                    90;                                                                     
| | • | our ability to enter into and maintain
                    long-term relationships with major oil and chemical companies;                                                                                                        
| | • | the absence of disputes with our
                    customers;                                                                                                                                                                  
| | • | our ability to maximize the use of our
                    vessels;                                                                                                                                                              
| | • | expected financial flexibility to pursue
                    acquisitions and other expansion opportunities;                                                                                                                     
| | • | our expected cost of complying with OPA 90
                    and our ability to finance such costs, including our ability to replace or
                    retrofit our existing vessels that must be phased out under OPA 90;
| | • | our ability to acquire existing vessels
                    and/or to construct new vessels, including our ability to finance such
                    acquisitions or construction;                                             
| | • | estimated future maintenance capital
                    expenditures;                                                                                                                                                           
| | • | the absence of future labor disputes or other
                    disturbances;                                                                                                                                                  
| | • | expected demand in the domestic tank vessel
                    market in general and the demand for our tank vessels in particular;                                                                                             
| | • | expected increases in charter
                    rates;                                                                                                                                                                         
| | • | future consolidation in the domestic tank
                    vessel industry;                                                                                                                                                   
| | • | customers’ increasing emphasis on
                    environmental and safety concerns;                                                                                                                                         
| | • | continued outsourcing of non-strategic
                    functions, such as domestic tank vessel operations, by companies in the oil and
                    chemical industries;                                              
| | • | our percentage of qualified revenue as defined by the IRS;                                                                                                                                                                     
| | • | our future financial condition or results of
                    operations and our future revenues, expenses and liquidity; and                                                                                                 
| | • | our business strategy and other plans and
                    objectives for future operations.                                                                                                                                  

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

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

| |   |                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | insufficient cash from operations;                                                                                                                                                                                                                                        
| | • | a decline in demand for refined petroleum,
                    petrochemical and commodity chemical products;                                                                                                                                                             
| | • | a decline in demand for or an increase in
                    tank vessel capacity;                                                                                                                                                                                       
| | • | intense competition in the domestic tank
                    vessel industry;                                                                                                                                                                                             
| | • | the occurrence of marine accidents or other
                    hazards;                                                                                                                                                                                                  
| | • | the loss of any of our largest
                    customers;                                                                                                                                                                                                             
| | • | fluctuations in voyage charter
                    rates;                                                                                                                                                                                                                 
| | • | the availability of, and our ability to
                    consummate, vessel acquisitions;                                                                                                                                                                              
| | • | insufficient funds to finance the
                    construction of new vessels we are committed to construct;                                                                                                                                                          
| | • | delays or cost overruns in the construction
                    of new vessels or the retrofitting or modification of older vessels;                                                                                                                                      
| | • | adverse events affecting the joint venture
                    formed to construct up to nine product tankers, including replacement of us as
                    manager of, or our loss of control of the board of directors of, such joint
                    venture;
| | • | our levels of indebtedness and our ability to
                    obtain credit on satisfactory terms;                                                                                                                                                                    
| | • | increases in interest rates;                                                                                                                                                                                                                                              
| | • | our liquidity;                                                                                                                                                                                                                                                            
| | • | weather interference with our
                    customers’ or our business operations;                                                                                                                                                                                  
| | • | changes in international trade
                    agreements;                                                                                                                                                                                                            
| | • | our ITBs remaining eligible to participate in
                    the UWILD Program;                                                                                                                                                                                      
| | • | failure to comply with the Merchant Marine
                    Act of 1920 (the “Jones Act”);                                                                                                                                                                             
| | • | modification or elimination of the Jones Act;
                    and                                                                                                                                                                                                     
| | • | adverse developments in our marine
                    transportation business.                                                                                                                                                                                           

Please read Risk
        Factors in Item 1A in Part II of this report and in Item 1A. of our Annual Report on Form 10-K for the year
        ended December 31, 2006, as amended in Item 1A of our Quarterly Report on Form 10-Q for the
        fiscal quarters ended March 31, 2007 and June 30, 2007, 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 debt outstanding during the nine months ended September 30,
        2007, a 1% change in our variable interest rates would have increased our interest expense
        by $0.6 million for the nine months ended September 30, 2007, after taking into effect
        the interest rate swap agreements we had in effect as described below.

We utilize
        interest rate swaps to reduce our exposure to market risk from changes in interest rates.
        The principal objective of such contracts is to minimize the risks and/or costs associated
        with our variable rate debt. These derivative instruments are designated as hedges and,
        accordingly, the gains and losses from changes in derivative fair values are recognized as
        comprehensive income as required by FASB Statement No. 133, “Accounting for
        Derivative Instruments and Hedging Activities, (“SFAS No. 133”), as
        amended. Gains and losses are recognized in the statement of operations in the same period
        that the underlying cash flow impacts the statement of operations. We are exposed to
        credit-related losses in the event of nonperformance by counterparties to these financial
        instruments; however, counterparties to these agreements are major financial institutions,
        and the risk of loss due to nonperformance is considered by management to be minimal. We do
        not hold or issue interest rate swaps for trading purposes.

36

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We had two
        interest rate swap agreements as of September 30, 2007. 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 September 30, 2007 the fair market values
        of our two interest rate swaps were a loss of $3.2 million and $0.6 million.

The following is
        a summary of the economic terms of these agreements at September 30, 2007 (dollars in
        thousands):

|                       |  |    |            |  
|---------------------- |  | -- | ---------- | -
|Notional amount        |  | $  | 123,438    |  
|Fixed rate paid        |  |    | 5.355      | %
|Variable rate received |  |    | 5.198      | %
|Effective date         |  |    | 8/15/2006  |  
|Expiration date        |  |    | 8/6/2012   |  
|Fair Value             |  | ($ | 3,168      | )
|                       |  |    |            |  
|Notional amount        |  | $  | 98,750     |  
|Fixed rate paid        |  |    | 4.890      | %
|Variable rate received |  |    | 5.198      | %
|Effective date         |  |    | 12/12/2006 |  
|Expiration date        |  |    | 8/6/2012   |  
|Fair Value             |  | ($ | 628        | )

We have entered
        into contracts for the purchase of owner-furnished items relative to our newbuild ATB
        series, denominated in Euros, costing approximately $14.4 million. To hedge the exposure to
        foreign currency, we have entered into a series of foreign currency forward contracts with
        an average exchange rate of $1.25/Euro. As of September 30, 2007 the fair value of the
        foreign currency hedge was approximately $1.2 million.

The contracts to
        construct our ATBs with MMG and Eastern are primarily fixed; however there is an escalator
        clause related to the price of steel and certain other equipment. The contract is priced
        utilizing a steel cost of $900/ton for steel plate and $1,100/ton for steel shape. The
        impact of an increase in steel prices of $100/ton would increase the cost of construction
        by $0.4 million per vessel.

Joint Venture
        Hedging

On February 27,
        2007, the Joint Venture purchased a $100.0 million 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 SFAS No. 133, as
        amended. The fair market value of the interest rate cap at September 30, 2007 was $2.4
        million and is recorded in “Other Assets” on the Unaudited Condensed
        Consolidated Balance Sheets. Changes in the fair value of those instruments are reported in
        earnings.

37

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The following is
        a summary of the economic terms of this agreement at September 30, 2007 (dollars in
        thousands):

|                  |  |   |          |  
|----------------- |  | - | -------- | -
|Notional amount   |  | $ | 100,000  |  
|Interest rate cap |  |   | 6.0      | %
|Effective date    |  |   | 4/1/2007 |  
|Expiration date   |  |   | 4/1/2016 |  
|Fair Value        |  | $ | 2,420    |  

|                            |                                            
|--------------------------- | -------------------------------------------
|ITEM
                    4. | Controls and
                    Procedures

In accordance
        with 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 September 30, 2007 to provide reasonable assurance that
        information required to be disclosed in our reports filed or submitted 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.

There has been
        no change in our internal control over financial reporting that occurred during the three
        months ended September 30, 2007 that has materially affected, or is reasonably likely to
        materially affect, our internal control over financial reporting.

38

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PART II—OTHER
        INFORMATION

|                            |                  
|--------------------------- | -----------------
|ITEM
                    1. | Legal Proceedings

We are subject
        to various claims and lawsuits in the ordinary course of business for monetary relief
        principally from personal injuries, collision or other casualty and to claims arising under
        vessel charters. Although the outcome of any individual claim or action cannot be predicted
        with certainty, we believe that any adverse outcome, individually or in the aggregate,
        would be substantially mitigated by applicable insurance or indemnification from previous
        owners of our assets, and would not have a material adverse effect on our financial
        position, results of operations or cash flows. We are subject to deductibles with respect
        to our insurance coverage which range up to $0.15 million per incident, and we provide on a
        current basis for estimated payments thereunder.

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

The following
        information updates the risk factors set forth in Item 1A. of our Annual Report on Form
        10-K for the year ended December 31, 2006, as amended as set forth in Item 1A of our
        Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 2007 and June 30,
        2007:

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

We originally
        expected the supply of domestic tank vessels competing with us to decrease over the next
        several years due to OPA 90, which mandates the phase-out of certain non-double-hulled tank
        vessels at varying times by January 1, 2015; and the Jones Act, which restricts the supply
        of new vessels by requiring that all vessels participating in the coastwise trade be
        constructed in the United States. However, with the recently announced newbuilding
        programs, we expect that these new vessels will become fully utilized on delivery and
        replace substantially all the capacity taken out of the market due to OPA 90. It is
        possible that some of these vessels may be placed in service prior to the phase-out of
        currently operating vessels, which could result in an over-supply of vessel capacity in the
        near term. As a result, we believe the domestic supply of tank vessels will not decrease at
        the rate we originally expected and may in fact increase.

Our ITB fleet is
        currently our largest source of revenue and earnings before interest, taxes, depreciation
        and amortization (“EBITDA”). However, , the expiration of the Hess Support
        Agreement in September 2007, under which we were assured minimum charter rates for our ITB
        fleet, the fact that more of our ITBs are expected to operate in the spot market rather
        than under long-term charters, increased volatility in rates in the spot market due to an
        increasing supply of vessels, and higher operating expenses of our ITBs due to their age
        and the new union contracts will negatively impact the operating income and EBITDA provided
        by our ITBs over the next several years.

In addition, any
        newbuildings or retrofittings of existing tank vessels will result in additional capacity
        that the market may not be able to absorb at the anticipated demand levels. The
        availability of additional capacity could adversely affect the charter rates that we can
        obtain. Further, several of the major oil companies have imposed a limit on the age of the
        vessels that they will utilize, and our ITBs have reached, or will soon reach, these age
        limits. Accordingly, we expect that our ITBs will derive a greater percentage of their
        revenue in the spot market, rather than from long-term charters, over the next several
        years. Under the Hess Support Agreement, our vessels operating in the spot market were
        provided minimum prices regardless of rates in the spot market; however, the Support
        Agreement expired in September 2007, and now our operations will be affected by prices we
        can obtain in the spot market. With respect to our four ITBs currently operating under
        long-term charters, charters for three of the ITBs, which account for 100% of their usable
        capacity, expire by the end of 2007 and we cannot assure you that we will be able to obtain
        long-term charters for these vessels in 2008 and thereafter. To the extent that vessels are
        employed in the spot market, rather than pursuant to long-term charters, our cash flows
        will be less predictable and may be more volatile, and this volatility could adversely
        affect our business, results of operations and financial condition, our ability to make
        distributions on our common units, and our ability to pay principal of, and interest on,
        our debt. In addition, the announced or other newbuilding programs may make the
        retrofitting of our ITBs uneconomical or unattractive to charterers compared to a newly
        built vessel.

39

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Industry trends away from long-term charters in
        favor of shorter-term charters may impact our ability to finance newly built
        vessels.

The long-haul
        marine transportation services market for refined petroleum products in the U.S. domestic
        “coastwise” trade is trending away from long-term charters in excess of three
        years in favor of shorter-term charters. If this trend continues, it will become
        increasingly difficult for us to finance the construction and purchase of new vessels with
        long-term debt or capital leases. In determining the amount of credit to extend with
        respect to a particular vessel, lenders place higher values on predictable cash flows that
        result from longer-term charters. If we cannot secure long-term charters for the product
        tankers currently under construction, we many not be able to obtain adequate debt financing
        to acquire these vessels on reasonable terms or at all.

Mandatory drydocking requirements for our fleet will result in increased expenditures
if we do not continue to participate in the
UWILD program and could adversely affect our cash available for distribution to unitholders and to pay interest on, and principal
of, our indebtedness.

Both domestic
        and international regulatory bodies require that our vessels be drydocked for major repair
        and maintenance at least twice every five years. 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 our ITBs to be drydocked once every five years,
        with a mid-period underwater survey in lieu of a drydock. We were recently advised by the
        U.S. Coast Guard that U.S. flagged non-double hulled tank vessels that are over 15 years in
        age and trade internationally will not, consistent with International Maritime Organization
        regulations, be eligible to participate in the UWILD Program. However, the U.S. Coast Guard
        has advised us that it will consider for participation in the UWILD Program non-double
        hulled tank vessels that are over 15 years of age but only trade domestically. If we are
        required to conduct a second drydock in each five year period rather than rely on an
        underwater survey, we estimate that our ITBs will be out of service for approximately 10 to
        20 days and the second drydock will cost approximately $1.0 million to $2.0 million. This
        longer out of service period and increased drydock expenses as compared to the time
        required for and the cost of conducting an underwater survey could adversely affect our
        business, financial condition and results of operations. This could also adversely impact
        our cash available to pay cash distributions and to pay interest on, and principal of, our
        indebtedness. Even if the Coast Guard allows us to continue in the UWILD Program, we will
        need to conduct an enhanced survey, which will result in the vessel being off-hire, and
        therefore not earning any revenue, for an additional seven days each time a survey is
        conducted.

Continuing pressure on our liquidity may, in the absence of our taking various steps available to us to increase our liquidity,
affect the cash available to us to pay the minimum quarterly distribution on our units.

Continuing
        pressure on our liquidity may, in the absence of our taking various steps available to us
        to increase our liquidity, affect the cash available to us to pay the minimum quarterly
        distribution on our units. Our liquidity has been, and may continue to be, affected by
        several factors, some of which are outside our control, including:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | Cost overruns on the construction of the
                    ATB Freeport of approximately $24.5 million from the amount estimated at
                    the time of the August 2006 refinancing resulted in additional borrowings under
                    our credit facility, thereby reducing availability under the credit facility to
                    meet our ongoing liquidity requirements, and increased interest
                    expense.                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | • | The potential for reduced operating margins
                    from our ITB fleet due to the expiration of the Hess Support Agreement in
                    September 2007, which provided us minimum rates on our vessels, increasing
                    volatility of rates in the spot market due to an increasing supply of vessels,
                    and higher operating expenses of our ITBs due to their age.                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | • | Increased vessel operating expenses due to
                    new collective bargaining agreements with the two maritime unions that cover
                    all of our seagoing personnel. The two agreements, which follow agreements
                    reached by other vessel operators in our industry, are expected to increase
                    vessel personnel expenses by approximately $3 million in 2008 when compared to
                    the 2007 levels under the expired contracts.

To the extent
        the foregoing or other factors negatively impact our future operating results, our
        available cash will be adversely affected.

Our partnership
        agreement requires that we distribute our available cash to unitholders on a quarterly
        basis. Available cash generally means, for each fiscal quarter, all cash on hand at the end
        of the quarter:

| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| | • | less the amount of cash reserves established
                    by our general partner to:

| |   |                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ¡ | provide for the proper conduct of our
                    business (including reserves for future capital expenditures, payments of
                    interest on, and principal of, our indebtedness and for our anticipated credit
                    needs);
| | ¡ | comply with applicable law, any of our debt
                    instruments or other agreements; or                                                                                                                                                               
| | ¡ | provide funds for distributions to our
                    unitholders and to our general partner for any one or more of the next four
                    quarters;                                                                                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | • | plus all cash on hand on the date of
                    determination of available cash for the quarter resulting from working capital
                    borrowings made after the end of the quarter for which the determination is
                    being made. Working capital borrowings are generally borrowings that will be
                    made under our credit facility and in all cases are used solely for working
                    capital purposes or to pay distributions to partners.

Currently, our
        common units have the right to receive distributions of available cash in an amount equal
        to the minimum quarterly distribution of $0.45 per quarter, plus any arrearages in the
        payment of the minimum quarterly distribution on the common units from prior quarters,
        before any distributions of available cash may be made on any subordinated units.
        Distribution arrearages do not accrue on the subordinated units. The purpose of the
        subordinated units is to increase the likelihood that during the subordination periods
        there will be available cash to pay the minimum quarterly distribution on the common units.
        Our common unitholders currently receive $5.1 million per quarter and our subordinated
        unitholders receive $3.3 million per quarter. There can be no assurance that our available
        cash will be adequate to pay the minimum quarterly distribution on the common and
        subordinated units in the future. The subordinated units will convert into common units at
        specified times beginning December 31, 2007 if specified tests are met. Please see the
        section titled “Cash Distribution Policy” in Part II, Item 5., “Market
        for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
        Equity Securities”, in our Annual Report on Form 10-K for the year ended December 31,
        2006 for a detailed discussion of our policies and conditions regarding cash distributions
        and the conversions of subordinated units into common units.

The agreements
        governing our indebtedness prohibit us from paying distributions following a default. In
        addition, the indenture under which our senior notes were issued provides that whenever our
        fixed charge coverage ratio (as defined in the indenture) is less than 1.75 to 1 for the
        last year, we cannot pay distributions that in aggregate during any period when our fixed
        charge coverage ratio is less than 1.75 to 1 an amount in excess of $50.0 million plus the
        proceeds of certain equity issuances. The minimum quarterly distribution per quarter that
        we currently pay is $8.4 million. Accordingly, we will be prohibited by the indenture from
        paying distributions except out of proceeds of certain equity issuances if our fixed charge
        coverage ratio is less that 1.75 to 1 for more than five quarters.

We continue to
        monitor our liquidity requirements and levels closely to ensure we have adequate liquidity
        to meet our ongoing working capital requirements, and we are continuing to examine our
        capital structure and other alternatives with the goal of increasing liquidity, including
        taking actions which could result in a reduction in the amount of the quarterly
        distribution paid on our subordinated units. Our inability to adequately address any
        liquidity issues that may arise in the future could impact our ability to pay the minimum
        quarterly distribution in full. The full minimum quarterly distribution on the common units
        of $0.45 will be paid prior to the payment of any distribution on our subordinated
        units.

|                            |                                                                                
|--------------------------- | -------------------------------------------------------------------------------
|ITEM
                    2. | Unregistered Sales of Equity Securities
                    and Use of Proceeds
|                            |                                                                                
|                            | None.                                                                          
|                            |                                                                                
|ITEM
                    3. | Defaults Upon Senior
                    Securities                            
|                            |                                                                                
|                            | Not applicable.                                                                
|                            |                                                                                
|ITEM
                    4. | Submission of Matters to a Vote of
                    Security Holders        
|                            |                                                                                
|                            | None.                                                                          
|                            |                                                                                
|ITEM
                    5. | Other Information                                                              
|                            |                                                                                
|                            | None.                                                                          

41

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

|                                   |  |                                                                                                                            
|---------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------
|Exhibit
                    Number |  | Description                                                                                                                
|                                   |  |                                                                                                                            
|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.

42

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SIGNATURES

Pursuant to the
        requirements 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: November 9, 2007

| |                             |                                                                 
| | --------------------------- | ----------------------------------------------------------------
| | U.S. SHIPPING PARTNERS L.P.
| |                            
| | By:                         | US Shipping General Partner LLC,                                
| |                             | its general partner                                             
| |                             |                                                                 
| | by:                         | /s/ Paul B. Gridley                                             
| |                             |                                                                 
| |                             | Paul B. Gridley                                                 
| |                             | Chairman, Chief Executive Officer                               
| |                             | (principal executive officer)                                   
| |                             |                                                                 
| | by:                         | /s/ Albert E. Bergeron                                          
| |                             |                                                                 
| |                             | Albert E. Bergeron                                              
| |                             | Vice President—Chief Financial
                    Officer      
| |                             | (principal financial and accounting
                    officer)

43

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