---

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

FORM 10-Q

|                                                 |                                                                                           
|------------------------------------------------ | ------------------------------------------------------------------------------------------
|x                                                | QUARTERLY REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                
|For
  the quarterly period ended June 30, 2008  
|                                                
|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, a
non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act.

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

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 August 7, 2008 was 11,353,808. At
that date, 6,899,968 subordinated units were also outstanding.

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U.S. SHIPPING PARTNERS L.P.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2008 
TABLE OF CONTENTS

|           |                                                                                                                                                         |    |         
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | --------
|           |                                                                                                                                                         |    | Page No.
|           |                                                                                                                                                         |    |         
|           |                                                                                                                                                         |    |         
|           | PART IFINANCIAL INFORMATION                                                                                                                            |    |         
|           |                                                                                                                                                         |    |         
|Item 1.    | Financial
  Statements                                                                                                                                  |    | 1       
|           |                                                                                                                                                         |    |         
|           | Unaudited
  Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31,
  2007                                                           |    | 1       
|           |                                                                                                                                                         |    |         
|           | Unaudited
  Condensed Consolidated Statements of Operations and Comprehensive Income for
  the three and six-month periods ended June 30, 2008 and 2007 |    | 2       
|           |                                                                                                                                                         |    |         
|           | Unaudited
  Condensed Consolidated Statement of Changes in Partners Capital for the
  six-month period ended June 30, 2008                             |    | 3       
|           |                                                                                                                                                         |    |         
|           | Unaudited
  Condensed Consolidated Statements of Cash Flows for the six-month periods
  ended June 30, 2008 and 2007                                    |    | 4       
|           |                                                                                                                                                         |    |         
|           | Notes to
  Unaudited Condensed Consolidated Financial Statements                                                                                        |    | 5       
|           |                                                                                                                                                         |    |         
|Item 2.    | Managements
  Discussion and Analysis of Financial Condition and Results of Operations                                                                 |    | 28      
|           |                                                                                                                                                         |    |         
|Item 3.    | Quantitative
  and Qualitative Disclosures About Market Risk                                                                                            |    | 49      
|           |                                                                                                                                                         |    |         
|Item 4.    | Controls
  and Procedures                                                                                                                               |    | 51      
|           |                                                                                                                                                         |    |         
|           | PART IIOTHER INFORMATION                                                                                                                               |    |         
|           |                                                                                                                                                         |    |         
|Item 1.    | Legal
  Proceedings                                                                                                                                     |    | 52      
|           |                                                                                                                                                         |    |         
|Item 1A.   | Risk
  Factors                                                                                                                                          |    | 52      
|           |                                                                                                                                                         |    |         
|Item 2.    | Unregistered
  Sales of Equity Securities and Use of Proceeds                                                                                           |    | 56      
|           |                                                                                                                                                         |    |         
|Item 3.    | Defaults
  Upon Senior Securities                                                                                                                       |    | 56      
|           |                                                                                                                                                         |    |         
|Item 4.    | Submission
  of Matters to a Vote of Security Holders                                                                                                   |    | 56      
|           |                                                                                                                                                         |    |         
|Item 5.    | Other
  Information                                                                                                                                     |    | 57      
|           |                                                                                                                                                         |    |         
|Item 6.    | Exhibits                                                                                                                                                |    | 57      
|           |                                                                                                                                                         |    |         
|SIGNATURES |                                                                                                                                                         | 58

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 
(in thousands)

|                                                        |  |               |         |                   |   |         |  
|------------------------------------------------------- |  | ------------- | ------- | ----------------- | - | ------- | -
|                                                        |  | June 30, 2008 |         | December 31, 2007 |  
|                                                        |  |               |         |                   |  
|Assets                                                  |  |               |         |                   |   |         |  
|Current assets                                          |  |               |         |                   |   |         |  
|Cash and equivalents                                    |  | $             | 38,083  |                   | $ | 21,604  |  
|Current portion of restricted cash and equivalents      |  |               | 49,515  |                   |   | 113,960 |  
|Accounts receivable, net                                |  |               | 8,169   |                   |   | 11,934  |  
|Prepaid expenses and other current assets               |  |               | 14,785  |                   |   | 10,683  |  
|                                                        |  |               |         |                   |   |         |  
|Total current assets                                    |  |               | 110,552 |                   |   | 158,181 |  
|Restricted cash and equivalents, net of current portion |  |               |        |                   |   | 11,322  |  
|Vessels and equipment, net                              |  |               | 619,503 |                   |   | 489,464 |  
|Deferred financing costs, net                           |  |               | 16,838  |                   |   | 19,019  |  
|Other assets                                            |  |               | 4,198   |                   |   | 5,042   |  
|                                                        |  |               |         |                   |   |         |  
|Total assets                                            |  | $             | 751,091 |                   | $ | 683,028 |  
|                                                        |  |               |         |                   |   |         |  
|                                                        |  |               |         |                   |   |         |  
|Liabilities and Partners Capital                       |  |               |         |                   |   |         |  
|Current liabilities                                     |  |               |         |                   |   |         |  
|Current portion of long-term debt                       |  | $             | 3,100   |                   | $ | 3,100   |  
|Accounts payable                                        |  |               | 14,856  |                   |   | 9,668   |  
|Due to affiliates                                       |  |               | 1,148   |                   |   | 3,393   |  
|Deferred revenue                                        |  |               | 1,085   |                   |   | 1,193   |  
|Accrued expenses and other liabilities                  |  |               | 26,921  |                   |   | 31,325  |  
|                                                        |  |               |         |                   |   |         |  
|Total current liabilities                               |  |               | 47,110  |                   |   | 48,679  |  
|Long-term debt, net of current portion                  |  |               | 515,708 |                   |   | 456,927 |  
|Deferred income taxes                                   |  |               | 182     |                   |   | 2,145   |  
|Other liabilities                                       |  |               | 10,159  |                   |   | 10,920  |  
|                                                        |  |               |         |                   |   |         |  
|Total liabilities                                       |  |               | 573,159 |                   |   | 518,671 |  
|                                                        |  |               |         |                   |   |         |  
|                                                        |  |               |         |                   |   |         |  
|Noncontrolling interest in Joint Venture                |  |               | 65,081  |                   |   | 33,324  |  
|                                                        |  |               |         |                   |   |         |  
|                                                        |  |               |         |                   |   |         |  
|Commitments and contingencies (Note 14)                 |  |               |         |                   |   |         |  
|                                                        |  |               |         |                   |   |         |  
|Partners Capital                                       |  |               |         |                   |   |         |  
|Partners capital                                       |  |               | 120,776 |                   |   | 139,263 |  
|Accumulated other comprehensive loss                    |  |               | (7,925  | )                 |   | (8,230  | )
|                                                        |  |               |         |                   |   |         |  
|Total partners capital                                 |  |               | 112,851 |                   |   | 131,033 |  
|                                                        |  |               |         |                   |   |         |  
|Total liabilities and partners capital                 |  | $             | 751,091 |                   | $ | 683,028 |  
|                                                        |  |               |         |                   |   |         |  

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
  June 30, |        | For the Six Months Ended
  June 30, |  
|                                                              |  |                                       |        |                                     |  
|                                                              |  | 2008                                  |        | 2007                                |   | 2008   |   | 2007 |        
|                                                              |  |                                       |        |                                     |   |        |   |      |        
|                                                             
|Revenues                                                      |  | $                                     | 49,819 |                                     | $ | 45,621 |   | $    | 101,323 |   | $ | 87,703 |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Operating expenses                                            |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Vessel operating expenses                                     |  |                                       | 16,384 |                                     |   | 17,407 |   |      | 33,405  |   |   | 32,325 |  
|Voyage expenses                                               |  |                                       | 17,331 |                                     |   | 8,712  |   |      | 31,010  |   |   | 16,149 |  
|General and administrative expenses                           |  |                                       | 4,011  |                                     |   | 4,241  |   |      | 8,005   |   |   | 8,006  |  
|Depreciation and amortization                                 |  |                                       | 10,445 |                                     |   | 9,054  |   |      | 20,949  |   |   | 18,102 |  
|Other expense (income)                                        |  |                                       | 45     |                                     |   |       |   |      | 5,832   |   |   | (3,486 | )
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Total operating expenses, net                                 |  |                                       | 48,216 |                                     |   | 39,414 |   |      | 99,201  |   |   | 71,096 |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Operating income                                              |  |                                       | 1,603  |                                     |   | 6,207  |   |      | 2,122   |   |   | 16,607 |  
|Interest expense                                              |  |                                       | 6,879  |                                     |   | 6,655  |   |      | 14,770  |   |   | 13,572 |  
|Interest income                                               |  |                                       | (655   | )                                   |   | (2,572 | ) |      | (1,695  | ) |   | (5,247 | )
|Net gains on derivative financial instruments                 |  |                                       | (586   | )                                   |   | (904   | ) |      | (1,028  | ) |   | (904   | )
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|(Loss) income before income taxes and noncontrolling interest |  |                                       | (4,035 | )                                   |   | 3,028  |   |      | (9,925  | ) |   | 9,186  |  
|(Benefit) provision for income taxes                          |  |                                       | (1,514 | )                                   |   | 202    |   |      | (1,222  | ) |   | 622    |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|(Loss) income before noncontrolling interest                  |  |                                       | (2,521 | )                                   |   | 2,826  |   |      | (8,703  | ) |   | 8,564  |  
|Noncontrolling interest in Joint Venture (income) loss        |  |                                       | (162   | )                                   |   | (418   | ) |      | 242     |   |   | (407   | )
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Net (loss) income                                             |  |                                       | (2,683 | )                                   |   | 2,408  |   |      | (8,461  | ) |   | 8,157  |  
|Other comprehensive loss                                      |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Fair market value adjustment for derivatives                  |  |                                       | 9,008  |                                     |   | 4,606  |   |      | 305     |   |   | 3,681  |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Comprehensive (loss) income                                   |  | $                                     | 6,325  |                                     | $ | 7,014  |   | $    | (8,156  | ) | $ | 11,838 |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|General partners interest in net (loss) income               |  | $                                     | (54    | )                                   | $ | 48     |   | $    | (169    | ) | $ | 163    |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Limited partners interest in net (loss) income               |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  
|Net (loss) income                                             |  | $                                     | (2,629 | )                                   | $ | 2,360  |   | $    | (8,292  | ) | $ | 7,944  |  
|Net (loss) income per unit - basic and diluted                |  | $                                     | (0.14  | )                                   | $ | 0.13   |   | $    | (0.45   | ) | $ | 0.44   |  
|Weighted average units outstanding - basic                    |  |                                       | 18,254 |                                     |   | 18,234 |   |      | 18,244  |   |   | 18,234 |  
|Weighted average units outstanding - diluted                  |  |                                       | 18,254 |                                     |   | 18,235 |   |      | 18,244  |   |   | 18,234 |  
|                                                              |  |                                       |        |                                     |   |        |   |      |         |   |   |        |  

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 CapitalSix Months Ended June
30, 2008 
(in thousands)

|                                             |  |                   |        |              |   |                                 |   |   |       |         |   |         |   |       |      |   |   |        |   |   |         |  
|-------------------------------------------- |  | ----------------- | ------ | ------------ | - | ------------------------------- | - | - | ----- | ------- | - | ------- | - | ----- | ---- | - | - | ------ | - | - | ------- | -
|                                             |  | Partners
Capital |        |              |   |                                 |   |   |      
|                                             |  |                   |        |              |   |                                 |   |   |      
|                                             |  | Limited
Partners  |        |              |   | Accumulated
Other Comprehensive |   |   |      
|                                             |  |                   |        |              |   |                                 |   |  
|                                             |  | Common            |        | Subordinated |   | General                         |   |   |       |        
|                                             |  | Units             |        | $            |   | Units                           |   | $ |       | Partner |   | Loss    |   | Total |     
|                                             |  |                   |        |              |   |                                 |   |   |       |         |   |         |   |       |     
|Balance at December 31, 2007                 |  |                   | 11,341 |              | $ | 157,683                         |   |   | 6,900 |         | $ | (18,936 | ) | $     | 516  |   | $ | (8,230 | ) | $ | 131,033 |  
|Net loss                                     |  |                   |       |              |   | (5,154                          | ) |   |      |         |   | (3,138  | ) |       | (169 | ) |   |       |   |   | (8,461  | )
|Issuance of common units                     |  |                   | 12     |              |   | 146                             |   |   |      |         |   |        |   |       |     |   |   |       |   |   | 146     |  
|Amortization of deferred equity compensation |  |                   |       |              |   | 37                              |   |   |      |         |   |        |   |       |     |   |   |       |   |   | 37      |  
|Fair market value adjustment for derivatives |  |                   |       |              |   |                                |   |   |      |         |   |        |   |       |     |   |   | 305    |   |   | 305     |  
|Cash distributions                           |  |                   |       |              |   | (10,209                         | ) |   |      |         |   |        |   |       |     |   |   |       |   |   | (10,209 | )
|                                             |  |                   |        |              |   |                                 |   |   |       |         |   |         |   |       |      |   |   |        |   |   |         |  
|Balance at June 30, 2008                     |  |                   | 11,353 |              | $ | 142,503                         |   |   | 6,900 |         | $ | (22,074 | ) | $     | 347  |   | $ | (7,925 | ) | $ | 112,851 |  
|                                             |  |                   |        |              |   |                                 |   |   |       |         |   |         |   |       |      |   |   |        |   |   |         |  

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 Six Months Ended |         
|                                                                                                        |  | June 30,                 |         
|                                                                                                        |  |                          |         
|                                                                                                        |  | 2008                     |          | 2007 |  
|                                                                                                        |  |                          |          |      |  
|Cash flows from operating activities                                                                    |  |                          |          |      |   |         |  
|Net (loss) income                                                                                       |  | $                        | (8,461   | )    | $ | 8,157   |  
|Adjustments to reconcile net (loss) income to net cash provided by
  operating activities               |  |                          |          |      |   |         |  
|Depreciation of vessels and equipment, and amortization of drydock
  costs and deferred financing costs |  |                          | 21,871   |      |   | 18,924  |  
|Impairment of construction-in-progress                                                                  |  |                          | 5,712    |      |   |        |  
|Loss on sale of surplus equipment                                                                       |  |                          | 120      |      |   |        |  
|Equity compensation                                                                                     |  |                          | 183      |      |   | 37      |  
|Provision for accounts receivable                                                                       |  |                          | 50       |      |   | 315     |  
|Noncontrolling interest in Joint Venture (income) loss                                                  |  |                          | (242     | )    |   | 407     |  
|Net gain on derivative financial instruments                                                            |  |                          | (1,028   | )    |   | (904    | )
|Deferred income taxes                                                                                   |  |                          | (1,290   | )    |   | (431    | )
|Capitalized drydock costs                                                                               |  |                          | (2,551   | )    |   | (5,606  | )
|Changes in assets and liabilities:                                                                      |  |                          |          |      |   |         |  
|Accounts receivable                                                                                     |  |                          | 3,263    |      |   | (103    | )
|Prepaid expenses and other current assets                                                               |  |                          | (2,851   | )    |   | (1,969  | )
|Other assets                                                                                            |  |                          |         |      |   | (158    | )
|Accounts payable                                                                                        |  |                          | 255      |      |   | (92     | )
|Deferred revenue                                                                                        |  |                          | (108     | )    |   | (1,178  | )
|Accrued expenses and other liabilities                                                                  |  |                          | (1,569   | )    |   | 1,850   |  
|                                                                                                        |  |                          |          |      |   |         |  
|Net cash provided by operating activities                                                               |  |                          | 13,354   |      |   | 19,249  |  
|                                                                                                        |  |                          |          |      |   |         |  
|                                                                                                        |  |                          |          |      |   |         |  
|Cash flows from investing activities                                                                    |  |                          |          |      |   |         |  
|Change in restricted cash and equivalents, net                                                          |  |                          | 75,767   |      |   | 26,274  |  
|Sale of surplus equipment                                                                               |  |                          | 280      |      |   |        |  
|Construction of vessels and equipment                                                                   |  |                          | (154,150 | )    |   | (60,506 | )
|Cash received upon settlement of derivative financial instrument                                        |  |                          | 657      |      |   | 173     |  
|Purchase of interest rate cap                                                                           |  |                          |         |      |   | (1,924  | )
|Payments to Hess, net                                                                                   |  |                          |         |      |   | (447    | )
|                                                                                                        |  |                          |          |      |   |         |  
|Net cash used in investing activities                                                                   |  |                          | (77,446  | )    |   | (36,430 | )
|                                                                                                        |  |                          |          |      |   |         |  
|                                                                                                        |  |                          |          |      |   |         |  
|Cash flows from financing activities                                                                    |  |                          |          |      |   |         |  
|Proceeds from borrowings                                                                                |  |                          | 7,000    |      |   | 25,000  |  
|Proceeds from Joint Venture revolver borrowings                                                         |  |                          | 53,331   |      |   | 5,535   |  
|Contribution by noncontrolling interest equity investors in Joint
  Venture                             |  |                          | 31,999   |      |   | 4,476   |  
|Repayment of debt                                                                                       |  |                          | (1,550   | )    |   | (1,388  | )
|Distributions to partners                                                                               |  |                          | (10,209  | )    |   | (16,744 | )
|                                                                                                        |  |                          |          |      |   |         |  
|Net cash provided by financing activities                                                               |  |                          | 80,571   |      |   | 16,879  |  
|                                                                                                        |  |                          |          |      |   |         |  
|                                                                                                        |  |                          |          |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                    |  |                          | 16,479   |      |   | (302    | )
|Cash and cash equivalents at beginning of period                                                        |  |                          | 21,604   |      |   | 2,686   |  
|                                                                                                        |  |                          |          |      |   |         |  
|Cash and cash equivalents at end of period                                                              |  | $                        | 38,083   |      | $ | 2,384   |  
|                                                                                                        |  |                          |          |      |   |         |  

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). The Partnerships first ATB, the ATB Freeport, was delivered in June 2007
and entered service in July 2007. Additionally, the Partnership has contracted
to construct three additional ATBs which are scheduled for delivery in August
2008, November 2008 and August 2009.

The
Partnership is engaged in transportation services between ports in the United
States, principally for refined petroleum products, petrochemical and commodity
chemical products. The vessels operate under the regulatory provisions of the
Jones Act. Recently, to improve utilization of the ITB fleet, the Partnership
has employed three of its ITBs to transport grain overseas for humanitarian
organizations. These transactions are not subject to the provisions of the
Jones Act, but U.S Flag vessels are given preference for these voyages.
Recognition principles of revenue and certain expenses for these voyages under
GAAP differ from the recognition principles applicable to our transportation of
petroleum, petrochemical and commodity chemical products. With respect to the
transportation of refined petroleum, petrochemical and commodity chemical
products, under GAAP we generally recognize revenue and certain voyage expenses based upon the relative
transit time in each period to the total estimated transit time for each
voyage. With respect to our grain voyages, we only recognize revenue and certain voyage expenses when the grain
is delivered to its final destination.

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. 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 second quarter
of 2009, the second tanker later in 2009, two tankers in 2010, one tanker in
2011, one tanker in 2012, two tankers in 2013 and the last tanker in 2014. The
Partnership currently expects the cost to construct these nine tankers to
aggregate approximately $1.2 billion (including an estimate for price
escalation based on projected increases in certain published price indexes),
exclusive of capitalized interest. In addition, NASSCO and Product Carriers
share in any cost savings achieved, measured against the original contract price
based on the terms of the construction contract. 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 manages and owns a 40% interest in the Joint Venture and third
parties own the remaining 60% interest. 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. Accordingly, the debt of the
Joint Venture is presented in the Partnerships consolidated financial statements,
although the Partnership has no obligation for the liabilities of the Joint
Venture in excess of its $70,000 capital commitment, of which approximately
$51,504 has already been made and the remaining $18,496 is in escrow.

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 in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. 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, 2007 (the Form 10-K). The December
31, 2007 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.

- 5 -

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2.Liquidity

During
the first half of 2008, all but one of the Partnerships ITBs began to operate
in the spot market for the transportation of petroleum products, which has
increased the volatility of the Partnerships revenues and working capital
requirements, and decreased the predictability of its cash flows. Beginning in
late March 2008, market conditions in the spot market deteriorated
substantially due to overall declining economic activity and decreased demand
for the domestic coastwise transportation of petroleum products. Additionally,
refinery utilization has declined considerably, fuel prices for operating the
Partnerships vessels are at record levels and newbuilds have increased
capacity serving the Jones Act market at a faster rate than demand and the
decrease in capacity due to the required phase-outs under the Oil Pollution Act
of 1990 (OPA 90). Due to these market shifts, the ITBs have recently incurred
idle periods greater than, and charter rates below, the Partnerships
expectations at the beginning of 2008. During the first half of 2008 the
Partnership also experienced modest decreased demand for the domestic coastwise
transportation of chemical products served by its chemical transporting
vessels, which the Partnership believes was primarily due to its customers
working off inventory levels due to the decline in economic activity. As a
result, the Partnerships cash flows and liquidity have come under increasing
pressure due to the current difficult market conditions, which has
substantially increased the likelihood that the Partnership will not be able to
remain in compliance with certain financial covenants relating to leverage
(debt to EBITDA) and fixed charge and interest coverage under its senior credit
facility as early as the end of the third quarter of 2008. The Partnership was
in compliance with all its financial covenants as of the end of the second
quarter of 2008.

If
a covenant breach occurs, the Partnership will be prohibited from making
distributions on its common units until it has cured such breach (although any
unpaid distributions will accrue). In addition, a breach of the Partnerships
loan covenants would give the lenders under the senior credit facility the
right to refuse to make funds available under the revolving credit facility and
to demand immediate payment of the Partnerships loans under the senior credit
facility and cause cross defaults under the Partnerships other debt
agreements. If all such outstanding indebtedness were declared to be
immediately due and payable, the Partnership would not have the financial
resources to repay immediately in full all outstanding borrowings under its
various debt agreements. As such, the Partnership would be required to either
amend the senior credit facility or replace it with an alternate credit facility.
In addition, the lenders under the senior credit facility could prohibit the
Partnership from paying interest on the senior notes.

In
response to these issues, the Partnership has retained Greenhill & Co., LLC
and Jefferies & Company, Inc. to assist it in exploring strategic
alternatives, including either the possible sale of the business or the sale of
new equity, and other ways to increase liquidity and strengthen the financial
resources of the Partnership. In order to give the Partnership adequate time to
pursue strategic alternatives, the Partnership has entered into negotiations
with its lenders to amend certain financial ratio covenants under its senior
credit facility.

In
light of these liquidity pressures, the Partnership did not pay a distribution
on its subordinated units and general partner units in respect of the fourth
quarter of 2007 and first quarter of 2008, and will not pay a distribution on
any of its units in respect of the second quarter of 2008. Based on discussions
to date with its lenders regarding an amendment to the senior credit facility,
the Partnership believes any amendment will prohibit the payment of
distributions on any units for at least a specified period of time.

Consistent
with generally accepted accounting principles, the condensed consolidated
financial statements included herein have been prepared on the basis that the
Partnership will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Assuming that the debt is not accelerated, the Partnership
believes that it will have sufficient liquidity to meet ongoing operations for
the remainder of 2008. The Partnerships lenders right to demand immediate
payment of the Partnerships outstanding indebtedness upon the occurrence of a
default under the senior credit facility, coupled with a substantial doubt
about the Partnerships ability to repay this indebtedness immediately and,
accordingly, in such circumstances to continue as a going concern, leads to the
need to successfully renegotiate its existing, or secure alternative, financing
arrangements. Although there can be no assurance, the Partnership believes it
will be successful in renegotiating its senior credit facility.

- 6 -

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3.New Accounting Pronouncements

In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) Statement No. 157, Fair
Value Measurement, (FAS 157) effective for fiscal years beginning after
November 15, 2007. FAS 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 157 applies under other accounting pronouncements that require or permit
fair value measurements. Relative to FAS 157, the FASB issued FASB Staff Position
(FSP) 157-2, which defers the effective date of FAS 157 for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis, until
fiscal years beginning after November 15, 2008, and interim periods within
those fiscal years. The Partnership adopted FAS 157 as of January 1, 2008
related to financial assets and financial liabilities. See Note 11 for
additional discussion on fair value measurements. The Partnership is currently
evaluating the impact of FAS 157 related to nonfinancial assets and
nonfinancial liabilities on the Partnerships financial statements.

In
February 2007, the FASB issued FAS Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an amendment of FAS
Statement No. 115, (FAS 159) effective as of the beginning of fiscal years
beginning after November 15, 2007. FAS 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. 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 has not
elected fair value treatment for any financial instruments as of June 30, 2008.

In
December 2007, the FASB issued FAS Statement No. 160, Noncontrolling Interests
in Consolidated Financial Statements  an amendment of ARB No. 51, effective as
of the beginning of fiscal years beginning after December 15, 2008. This
pronouncement, among other requirements, requires entities with noncontrolling
interests to classify noncontrolling interests as components of equity. This
pronouncement requires entities to be viewed for reporting purposes from an
economic unit perspective rather than a controlling interest perspective. This
pronouncement will impact the Partnerships financial statement presentation
for the 60% noncontrolling interest of the Partnerships Joint Venture.

In
December 2007, the FASB issued FAS Statement No. 141 (revised 2007), Business
Combinations, (FAS 141(R)) which replaces FAS 141, Business Combinations.
FAS 141(R) retains the underlying concepts of FAS 141 in that all business
combinations are still required to be accounted for at fair value under the
acquisition method of accounting but FAS 141(R) changed the method of applying
the acquisition method in a number of significant aspects. FAS 141(R) is
effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax contingencies. FAS
141(R) amends FAS 109 Income Taxes such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies associated with
acquisitions that closed prior to the effective date of FAS 141(R) would also
apply the provisions of FAS 141(R). Early adoption is not allowed. The
Partnership will evaluate the impact of this pronouncement on any future
acquisitions.

In
March 2008, the Emerging Issues Task Force reached a consensus on EITF 07-4,
Application of the Two-Class Method under FASB Statement No. 128, Earnings per
Share, to Master Limited Partnerships. EITF 07-4 requires master limited
partnerships with incentive distribution rights (IDRs), to measure earnings
per unit as it relates to IDRs consistent with the two-class method of
measuring earnings per unit. This issue is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Partnership is evaluating the impact of this
pronouncement.

- 7 -

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In
March 2008, the FASB issued FAS Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB Statement No.
133, (FAS 161). FAS 161 expands the current disclosure requirements of FAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, (FAS
133) such that entities must now provide enhanced disclosures on a quarterly
basis regarding how and why the entity uses derivatives; how derivatives and
related hedged items are accounted for under FAS 133 and how derivatives and
related hedged items affect the entitys financial position, performance and
cash flow. Pursuant to the transition provisions of the Statement, the
Partnership will adopt FAS 161 in fiscal year 2009 and will present the
required disclosures in the prescribed format on a prospective basis. This
Statement will not impact the Partnerships financial statements as it is
disclosure-only in nature.

In
April 2008, the FASB issued FAS Statement No. 162, The Hierarchy of Generally
Accepted Accounting Principles, (FAS 162). FAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy). This Statement is effective 60 days following
the SECs approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles. The Partnership does not expect the adoption of
FAS 162 to impact its financial statements.

4.Net Income (loss) per Unit

Basic
net income (loss) per unit is determined by dividing net income (loss), after
deducting the amount of net income (loss) allocated to the general partners
interest, by the weighted average number of units outstanding during the
period. Diluted net income (loss) per unit is calculated in the same manner as
net income (loss) per unit, except that the weighted average number of
outstanding units is increased to include the dilutive effect of outstanding
unit options and phantom units. Outstanding restricted stock units, unit
options and phantom units are excluded from the calculation of diluted net loss
per unit because their inclusion would have an anti-dilutive effect.

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

|                                                                    |  |                                       |        |                                     |  |        |  |      |        |  |  |        | 
|------------------------------------------------------------------- |  | ------------------------------------- | ------ | ----------------------------------- |  | ------ |  | ---- | ------ |  |  | ------ | 
|                                                                    |  | For the Three Months Ended
  June 30, |        | For the Six Months Ended
  June 30, | 
|                                                                    |  |                                       |        |                                     | 
|                                                                    |  | 2008                                  |        | 2007                                |  | 2008   |  | 2007 |       
|                                                                    |  |                                       |        |                                     |  |        |  |      |       
|                                                                   
|Weighted average units outstanding for basic net income per unit    |  |                                       | 18,254 |                                     |  | 18,234 |  |      | 18,244 |  |  | 18,234 | 
|Dilutive effect of restricted units                                 |  |                                       |       |                                     |  | 1      |  |      |       |  |  |       | 
|                                                                    |  |                                       |        |                                     |  |        |  |      |        |  |  |        | 
|Weighted average units outstanding for dilutive net income per unit |  |                                       | 18,254 |                                     |  | 18,235 |  |      | 18,244 |  |  | 18,234 | 
|                                                                    |  |                                       |        |                                     |  |        |  |      |        |  |  |        | 

Excluded
from the calculation of dilutive net loss per unit for the six months ended
June 30, 2008 are 6,143 restricted units that, if included, would have an
anti-dilutive effect. There were no dilutive securities outstanding during the
three months ended June 30, 2008.

- 8 -

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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 June 30,
2008 and December 31, 2007, the ATB Escrow balance was $31,019 and $85,453,
respectively, and the Joint Venture Escrow balance was $18,496 and $39,829,
respectively. Additionally, amounts drawn on the ATB Escrow account for items
expected to be paid in the third quarter of 2008 were $26,417, and are included
in cash and equivalents on the Unaudited Condensed Consolidated Balance Sheets
at June 30, 2008 as they were no longer legally restricted as to use at June
30, 2008. Similar amounts included in cash and equivalents totaled $13,369 at
December 31, 2007. Amounts the Partnership projects will be used to satisfy
obligations due during the next twelve months are classified as current
restricted cash and equivalents of $49,515 and $113,960 at June 30, 2008 and
December 31, 2007 respectively. At December 31, 2007, the remainder balance of
$11,322 of restricted cash was classified as noncurrent restricted cash and
equivalents.

6.Vessels and Equipment

Vessels
and equipment consist of the following:

|                                                                               |  |               |         |                   |   |         | 
|------------------------------------------------------------------------------ |  | ------------- | ------- | ----------------- | - | ------- | 
|                                                                               |  | June 30, 2008 |         | December 31, 2007 |  
|                                                                               |  |               |         |                   |  
|Vessels                                                                        |  | $             | 348,315 |                   | $ | 348,368 | 
|Office furniture, equipment and other                                          |  |               | 448     |                   |   | 448     | 
|                                                                               |  |               |         |                   |   |         | 
|                                                                               |  |               | 348,763 |                   |   | 348,816 | 
|Less: Accumulated depreciation                                                 |  |               | 118,852 |                   |   | 106,810 | 
|                                                                               |  |               |         |                   |   |         | 
|                                                                               |  |               | 229,911 |                   |   | 242,006 | 
|Construction in progress-ATBs                                                 |  |               | 159,059 |                   |   | 111,321 | 
|Construction in progress-tankers                                               |  |               | 204,161 |                   |   | 101,141 | 
|Capitalized drydock expenditures, net of amortization of $31,082 and
  $22,172 |  |               | 26,372  |                   |   | 34,996  | 
|                                                                               |  |               |         |                   |   |         | 
|Total vessels and equipment, net                                               |  | $             | 619,503 |                   | $ | 489,464 | 
|                                                                               |  |               |         |                   |   |         | 

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.

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 expects to
continue to participate in the UWILD Program. If the Partnership is required to
conduct a second drydock in each five year period rather than rely on an
underwater survey, the ITBs will be out of service longer and drydock
expenditures will be higher than the time required for and the cost of
conducting an underwater survey. Because of the age of the ITBs, their
continued participation in the UWILD Program is now conditioned on their
undergoing an enhanced survey during the UWILD, resulting in the vessel being
off-hire, and not earning revenue, for an additional 12 days each time a survey
is conducted; however, under international maritime organization regulations, in
order for it to continue to trade internationally (including grain voyages), it
will have to undergo two drydockings in each five year period, rather than a
drydocking and a UWILD. Additionally, vessels may have to be drydocked in the event
of accidents or other unforeseen damage. The Partnerships recently constructed
ATB Freeport and all of the
newbuild ATBs and product tankers qualify for the UWILD Program.

Three
vessels employed in our chemical business are scheduled for drydocking in the
fourth quarter of 2008, and two ITBs are scheduled for UWILD surveys in the
fourth quarter of 2008.

- 9 -

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There
were no drydocks in progress at June 30, 2008 or December 31, 2007. The ITB Baltimore sustained damages during Hurricane
Dean while in the shipyard after completing its drydocking in mid-2007. Costs
to repair the ITB Baltimore are
substantially covered by insurance, with the exception of the insurance policy
deductible of $125, which is the total loss previously recognized due to the
damage sustained by the ITB Baltimore.
The Partnership does not carry off-hire insurance for the revenues lost while
repairs are performed. At June 30, 2008 and December 31, 2007, the Partnership
has recognized approximately $753 and $745 as a receivable for the insurance
proceeds based upon the estimated repair costs, respectively. Capitalized
drydock expenditures of $338 and $2,433 were accrued at June 30, 2008 and
December 31, 2007, respectively. During the six months ended June 30, 2008, the
Partnership reduced previously recorded estimates of drydock costs by $170.

Depreciation
of vessels and equipment for the three months ended June 30, 2008 and June 30,
2007 was $6,021 and $5,591, respectively. Amortization of drydocking expenditures
was $4,426 and $3,463 for the three months ended June 30, 2008 and 2007,
respectively.

Depreciation
of vessels and equipment for the six months ended June 30, 2008 and June 30,
2007 was $12,041 and $11,182, respectively. Amortization of drydocking
expenditures was $8,910 and $6,920 for the six months ended June 30, 2008 and
June 30, 2007, respectively.

At
June 30, 2008 and December 31, 2007, Construction in progress-ATBs includes
capitalized interest of $12,828 and $7,793, respectively, and accrued invoices
(which represent cash flow add backs) of $6,947 and $1,237, respectively. At
June 30, 2008 and December 31, 2007, Construction in progress-tankers of the
Joint Venture includes capitalized interest of $16,574 and $11,266,
respectively, and accrued liabilities of $11,290 and $15,589, respectively.

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,
although the Partnership had an option to cancel the fourth barge, which it
exercised immediately prior to its expiration on June 30, 2008. In 2006, the
Partnership 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 included an
option to construct and deliver an additional tug which would have been
combined with the fourth barge referenced above; however, the Partnership let
this option expire in connection with the cancellation of the contract to
construct the fourth barge. The total construction cost anticipated for the
first three new ATB units is approximately $67,000 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
Partnership expects that the first two of these ATB units will be completed in
August 2008 and November 2008, respectively, and the third ATB unit to be
completed in August 2009. As of June 30, 2008, the Partnership made payments
totaling $146,231 related to the first three ATBs and had in escrow approximately
$31,019, plus $26,417 of funds drawn from the escrow account in anticipation of
payments due in the third quarter of 2008. These escrowed amounts and funds
drawn represent the estimated cost to substantially complete construction of
the first three ATBs under construction at MMG and Eastern.

During
the quarter ended March 31, 2008, the Partnership determined that the fourth
ATB unit referenced above was impaired, as the Partnership did not obtain
financing for its construction and assessed the fair value of the construction
in progress of this ATB unit at zero which resulted in a non-cash impairment
charge of $5,720, which includes $3,831 previously paid for construction of the
barge portion of this ATB unit, $1,394 for deposits on certain owner furnished
equipment and $495 of capitalized interest cost. In the second quarter of 2008,
the Partnership exercised its cancellation option and recorded a favorable
adjustment of $8 to this impairment charge. In addition, the Partnership may be
required to make additional payments for certain owner furnished equipment but
it has no further financial obligations with regard to either the tug or the
barge.

- 10 -

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On October 25, 2007, the
Joint Venture and NASSCO contractually accelerated the delivery dates for the
first five tankers that NASSCO is constructing for the Joint Venture. The
revised delivery schedule is for the first tanker to be delivered in the second
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. Because Product Carriers and the Joint Venture
have declined NASSCOs request to accelerate the delivery of tankers six
through nine, 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 materially affect the delivery
dates of vessels six through nine. In June 2008 the Partnership extended until
September 21, 2008 the expiration date of the option for the Joint Venture
Investors to elect to finance the construction of the sixth and seventh vessels
to be constructed under the Partnerships contract with NASSCO. There were no
fees associated with this extension.

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

7.Deferred Financing Costs

Deferred
financing costs include fees and costs incurred to obtain debt financings. On August
7, 2006, as part of the Partnerships debt and equity financings, the
Partnership issued senior secured notes and entered into an amended and
restated credit facility, while the Joint Venture entered into its own
revolving credit loan facility. In conjunction therewith, the Partnership and
Joint Venture incurred approximately $11,586 and $12,960 of deferred financing
costs, respectively. 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 six months ended June 30, 2008, deferred financing
costs of the Partnership (excluding those of the Joint Venture) of $462 and
$927, respectively, were amortized and included in interest expense in the
accompanying Unaudited Condensed Consolidated Statements of Operations and
Comprehensive Income, compared to $418 and $822 for the three and six months
ended June 30, 2007, respectively. A pro rata portion of the 2008 and 2007
amortization of deferred financing costs is included in construction in
progress-ATBs as part of the capitalized interest portion of the Partnerships
ongoing project to construct ATBs. For the three and six months ended June 30,
2008, deferred financing costs of $627 and $1,254, respectively, were amortized
and included in construction in progress-tankers as part of the capitalized
interest portion of the Joint Ventures ongoing project to construct tankers,
compared to $627 and $1,248 for the three and six months ended June 30, 2007.

8.Accrued Expenses and Other Liabilities

Accrued
expenses and other liabilities consisted of the following at June 30, 2008 and
December 31, 2007:

|                        |  |               |        |                   |   |        | 
|----------------------- |  | ------------- | ------ | ----------------- | - | ------ | 
|                        |  | June 30, 2008 |        | December 31, 2007 |  
|                        |  |               |        |                   |  
|Construction of vessels |  | $             | 11,365 |                   | $ | 16,977 | 
|Interest                |  |               | 5,293  |                   |   | 5,218  | 
|Insurance claims        |  |               | 2,213  |                   |   | 2,520  | 
|Fuel charges            |  |               | 3,030  |                   |   | 2,080  | 
|Taxes payable           |  |               | 1,295  |                   |   | 1,947  | 
|Other                   |  |               | 3,725  |                   |   | 2,583  | 
|                        |  |               |        |                   |   |        | 
|                        |  | $             | 26,921 |                   | $ | 31,325 | 
|                        |  |               |        |                   |   |        | 

- 11 -

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9.Debt

The
Partnerships outstanding debt consisted of the following at June 30, 2008 and
December 31, 2007:

|                                                                                                                                                          |  |               |         |                   |   |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ----------------- | - | ------- | 
|                                                                                                                                                          |  | June 30, 2008 |         | December 31, 2007 |  
|                                                                                                                                                          |  |               |         |                   |  
|Third Amended and Restated Credit Facility - Term, bearing interest at
  LIBOR plus 3.5% (6.3% at June 30, 2008 and 8.3% at December 31, 2007)            |  | $             | 304,247 |                   | $ | 305,797 | 
|Third Amended and Restated Credit Facility - Revolving Notes bearing
  interest at LIBOR plus 3.5% (6.3% at June 30, 2008and 8.3% at December 31,
  2007) |  |               | 20,000  |                   |   | 13,000  | 
|13% Senior Secured Notes due 2014                                                                                                                         |  |               | 100,000 |                   |   | 100,000 | 
|Revolving Notes Facility - Joint Venture, bearing interest at LIBOR
  plus 4.5% (7.0% at June 30, 2008 and 9.3% at December 31, 2007)                     |  |               | 94,561  |                   |   | 41,230  | 
|                                                                                                                                                          |  |               |         |                   |   |         | 
|Total                                                                                                                                                     |  |               | 518,808 |                   |   | 460,027 | 
|Less: Current portion of long-term debt                                                                                                                   |  |               | 3,100   |                   |   | 3,100   | 
|                                                                                                                                                          |  |               |         |                   |   |         | 
|Long-term debt                                                                                                                                            |  | $             | 515,708 |                   | $ | 456,927 | 
|                                                                                                                                                          |  |               |         |                   |   |         | 

Capitalized
interest for the three months ended June 30, 2008 and June 30, 2007 was $5,639
and $5,228, respectively. Capitalized interest for the six months ended June
30, 2008 and June 30, 2007 was $10,838 and $9,728, respectively.

The
Partnerships cash flows and liquidity have come under increasing pressure due
to the current difficult market conditions, which has substantially increased
the likelihood that the Partnership will fall out of compliance with certain
financial covenants relating to leverage (debt to EBITDA) and fixed charge and
interest coverage under its senior credit facility as early as the third
quarter of 2008. The Partnership was in compliance with all its financial
covenants as of the end of the second quarter of 2008, and expects to generate
sufficient cash that, together with borrowings under its revolving credit
facility, will allow the Partnership to make interest payments and scheduled
principal payments on its debt. In order to give the Partnership adequate time
to pursue strategic alternatives, the Partnership has entered into negotiations
with its lenders to amend certain financial ratio covenants under its senior
credit facility. The Partnership expects that any amendment to its financial
covenants will require the payment of fees and a higher rate of interest, which
would negatively impact the Partnerships results of operations. See Note 2 for
additional discussion.

10. Taxes

In
January 2008, the Partnership made an election to treat one of its
subsidiaries, USCS Sea Venture LLC,
as a corporation for tax purposes effective January 2, 2008. The tax basis of
the assets of this entity differed from the book basis at the time of the
election, resulting in the recognition of a deferred tax asset and related tax
benefit of $1,114 in the three months ended March 31, 2008, before any
valuation allowance.

Subsequently,
the Partnership determined that the deferred tax asset and related tax benefit
recorded in the three months ended March 31, 2008 should have been $646, which
is net of a valuation allowance of $117. The revision to the deferred tax asset
was recorded during the three months ended June 30, 2008, resulting in a
decrease of $468 in the deferred tax benefit for the period.

In
February 2008, the Partnership made an election to treat one of its
subsidiaries, ITB Philadelphia LLC,
as a corporation for tax purposes effective December 10, 2007. The tax basis of
the assets of this entity differed from the book basis at the time of the
election, resulting in the recognition of a deferred tax liability and related
tax expense of $1,431 in the three months ended March 31, 2008.

- 12 -

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In
May 2008, the Partnership contributed the ownership interests of four of its
subsidiaries, ITB Jacksonville LLC, ITB
Groton LLC, ITB Baltimore LLC,andITB New York LLC, to one of its subsidiaries, USCS Chemical
Pioneer, Inc., that is a corporation. The tax basis of the assets of
these entities differed from the book basis at the time of the transfers,
resulting in the recognition of a deferred tax asset of $2,861, which is net of
a $2,873 valuation allowance recorded as part of the valuation allowance
discussed below.

The
Partnership provides deferred income taxes for the tax effects of differences
between the financial reporting and tax bases of assets and liabilities of its
subsidiaries taxed as corporations, which are recorded at enacted tax rates in
effect for the years in which the differences are projected to reverse. The
Partnership evaluates the recoverability of deferred tax assets and establishes
a valuation allowance when it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The Partnership determined
that it is more likely than not that certain deferred tax assets that existed
as of June 30, 2008 will not be realized and, accordingly, provided valuation
allowances totaling $3,777 for these deferred tax assets. There were no such
allowances as of December 31, 2007. At June 30, 2008 and December 31, 2007, the
Partnership had net deferred tax assets of $37 and $713, respectively. At June
30, 2008 and December 31, 2007, the Partnership had net deferred tax
liabilities of $182 and $2,145, respectively.

At
June 30, 2008 and December 31, 2007, the Partnership had $871 and $729 of
unrecognized tax benefits, respectively, excluding interest and penalties. At
June 30, 2008 and December 31, 2007, the Partnership had approximately $146 and
$99, respectively, of accrued interest and penalties related to uncertain tax
positions. In the three month periods ended June 30, 2008 and 2007, the Partnerships
Unaudited Condensed Consolidated Statement of Operations included $90 and $88
of unrecognized tax benefits, respectively. In the six month periods ended June
30, 2008 and 2007, the Partnerships Unaudited Condensed Consolidated Statement
of Operations included $188 and $228 of unrecognized tax benefits,
respectively. There were no other increases or decreases in unrecognized tax
benefits during the period related to the lapse of any statute of limitations,
settlements with taxing authorities, or changes in the Partnerships assessment
of whether it was more likely than not to prevail based on the technical merits
of any tax position taken in prior periods. The tax years 2002-2007 remain open
to examination by the major taxing jurisdictions in which the Partnership is
subject to tax.

11. Hedging

Use
of Fair Value Measures

In
September 2006, the FASB issued FAS 157 effective for fiscal years beginning
after November 15, 2007. FAS 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 157 applies under other accounting pronouncements that require or permit
fair value measurements. Relative to FAS 157, the FASB issued FSP 157-1 and
157-2. FSP 157-1 amends FAS 157 to exclude FAS No. 13, Accounting for Leases,
and its related interpretive accounting pronouncements that address leasing
transactions. FSP 157-2 defers the effective date of FAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis, until fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years. Non-recurring nonfinancial assets
and nonfinancial liabilities include those measured at fair value in goodwill
impairment testing, indefinite lived intangible assets measured at fair value
for impairment testing, asset retirement obligations initially measured at fair
value, and those assets and liabilities initially measured at fair value in a
business combination. The Partnership has adopted FAS 157 as of January 1, 2008
related to financial assets and financial liabilities and the adoption did not
have an impact on the Partnerships financial statements. The Partnership is
currently evaluating the impact of FAS 157 related to nonfinancial assets and nonfinancial
liabilities on the Partnerships financial statements.

- 13 -

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The
Partnership endeavors to utilize the best available information in measuring
fair value. The Partnership has determined that all of its financial assets and
financial liabilities are valued using Level 2 inputs as of June 30, 2008 in
the fair value hierarchy described as follows:

Valuation
Hierarchy

FAS
157 establishes a valuation hierarchy for disclosure of the inputs to valuation
used to measure fair value. This hierarchy prioritizes the inputs into three
broad levels as follows:

Level
1 inputs  quoted prices (unadjusted) in active markets for identical assets or
liabilities.

Level
2 inputs  quoted prices for similar assets and liabilities in active markets
or inputs that are observable for the asset or liability, either directly or
indirectly through market corroboration, for substantially the full term of the
financial instrument.

Level
3 inputs  unobservable inputs based on the Partnerships own assumptions used
to measure assets and liabilities at fair value. A financial asset or
liabilitys classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value measurement.

The
financial assets and liabilities carried at fair value measured via Level 2
inputs on a recurring basis as of June 30, 2008 include:

| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| | · | Foreign currency forward
  contracts with a fair market asset value of $838.
| |   |                                                                             
| | · | An interest rate cap with
  a fair market asset value of $2,296.            
| |   |                                                                             
| | · | An interest rate swap with
  a fair market liability value of $5,998.       
| |   |                                                                             
| | · | An interest rate swap with
  a fair market liability value of $3,144.       

Valuation
Techniques

The
fair value of the foreign currency forward contracts is based on dealer quotes
of market forward rates and reflects the amount the Partnership would receive
or pay at their maturity dates for contracts involving the same currencies and
maturity dates.

The
fair value of the interest rate cap is developed from market-based inputs under
the income approach using cash flows discounted at relevant market interest
rates.

The
fair value of the interest rate swaps is developed from market-based inputs
under the income approach using cash flows discounted at relevant market
interest rates.

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 $5,998 at June 30, 2008 and a loss of $6,643 at December 31, 2007, and
is reflected in other comprehensive income in the accompanying financial
statements as this contract has been designated as a cash flow hedge.

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 $3,144 at June 30, 2008 and a loss of $3,449
at December 31, 2007, and is reflected in other comprehensive income in the
accompanying financial statements, as this contract has been designated as a
cash flow hedge.

- 14 -

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In
February 2006, the Partnership entered into contracts, denominated in Euros,
for the purchase of owner-furnished items costing approximately $14,439
relative to the Partnerships newbuild ATB series. To hedge the exposure to
foreign currency, the Partnership entered into a series of foreign currency
forward contracts effective through June 5, 2009, with an average exchange rate
of $1.25/Euro. These contracts were originally designated as cash flow hedges,
and through February 2008 the fair value of these contracts was included in
other comprehensive income. In March 2008, the Partnership paid amounts for the
purchase of a portion of the owner-furnished equipment six months ahead of the
original forecasted expenditure date. Accordingly, changes in fair value of the
contract related to this expenditure subsequent to the date of the March
payment, totaling $25, is included in earnings, since the forecasted hedging
relationship no longer exists. In addition, two of the forecasted payments were
contractually extended and subsequently terminated, rendering the contracts
designated as cash flow hedges for these forecasted payments ineffective. The
Partnership sold these contracts during June 2008 and received net proceeds
totaling $657, which is included in earnings. Of the total fair value of
foreign exchange gains of $838 at June 30, 2008, $813 was recorded in other comprehensive
income at June 30, 2008, and $25 was recorded in earnings for the each of the
three and six-month periods ended June 30, 2008. The gain or loss on the
foreign currency forward contracts currently included in comprehensive income
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. The fair market
value of the foreign currency forward contracts at June 30, 2008 and December 31,
2007 was a gain of $838 and $955, respectively.

Joint
Venture Hedging

On
February 27, 2007, the Joint Venture purchased a nine year interest rate cap
with a notional amount of $100,000 effective April 1, 2007 for $1,924,
including transaction fees. This interest rate cap of the three month U.S.
Dollar LIBOR of 6% is part of a hedging strategy in place at the Joint Venture
to protect the value of its vessels and the chartering contracts thereon. Upon
the completion of the construction of each vessel, the Joint Venture expects to
sell the vessel together with any chartering contract that may be in place on
such vessel. Since the long-term chartering contracts entered into by the Joint
Venture will result in a fixed stream of cash flows over a multi-year period,
the value that the Joint Venture may be able to obtain upon the sale of the
combined vessel and chartering contract is subject to volatility based upon how
interest rates fluctuate. The interest rate cap is intended to reduce the
potential negative impacts to the Joint Ventures cash flows that could result
in movements in interest rates between the date a chartering contract was
entered into for the first product tanker in December 2006 and the anticipated
sale date of such combined vessel and chartering contract. The Joint Venture
does not plan to hold or issue derivative financial instruments for trading
purposes, but has not performed the activities necessary to qualify the
contract for hedge accounting treatment under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. The fair market
value of the interest rate cap at June 30, 2008 and December 31, 2007 was a
receivable of $2,296 and $1,950, respectively, and is recorded in Other
Assets on the Unaudited Condensed Consolidated Balance Sheets. An increase in
the fair value of the instrument of $609 and $346 for the three and six months
ended June 30, 2008 is recorded as a gain on derivative financial instruments
in the accompanying Unaudited Condensed Consolidated Statements of Operations
and Comprehensive Income, compared to a gain of $731 for each of the three and
six months ended June 30, 2007.

12. Partners Capital

The
Partnerships general partner has a 2% general partner interest and certain
incentive distribution rights in the Partnership. Incentive distribution rights
represent the right to receive an increasing percentage of cash distributions
after the minimum quarterly distribution, any cumulative arrearages on common units,
and certain target distribution levels, have been achieved. The Partnership is
required to distribute all of its available cash from basic surplus, as defined
in the Partnership agreement. 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.

Distributions

In
July 2008, the Board of Directors of the general partner determined not to
declare a distribution in respect of the second quarter of 2008 on any of its
outstanding common units, subordinated units and general partner units.

On
May 12, 2008, the Board of Directors of the general partner declared the regular cash distribution as it relates to the first
quarter of 2008 of $0.45 per common unit, but did not declare a distribution on
its subordinated units and general partner units for the first quarter. The
distribution was paid on all common units on May 21, 2008 to all common
unitholders of record on May 16, 2008. The aggregate amount of the distribution
was $5,109.

- 15 -

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On
February 7, 2008, the Board of Directors of the general partner declared and
the Partnership announced its regular cash distribution as it relates to the
fourth quarter of 2007 of $0.45 per common unit. The distribution was paid on
all common units on February 15, 2008 to all common unitholders of record on
February 12, 2008. The aggregate amount of the distribution was $5,100. In
February 2008, the Partnership did not declare or pay a distribution on the
subordinated or general partners units. United States Shipping Master LLC
(Shipping Master), the holder of the Partnerships subordinated units and
general partner units, requested that the Partnership not pay the fourth
quarter distribution on the subordinated units and general partner units and
instead retain the cash for working capital purposes; to increase the reserves
available for payment of future distributions on its common units; for the
completion of its capital construction program; and to strengthen coverage with
respect to the Partnerships financial covenants under its credit facility in
future periods.

Restricted
Units / Deferred Equity Compensation

On
April 1, 2008, the Partnership issued to each of the non-employee directors of
its general partner, who are not employed by Sterling Investment Partners,
3,065 fully vested common units under the Long-Term Incentive Plan for a total
grant of 12,260 units. The value of the restricted units as determined on the date
of issuance was $146, which has been fully recognized in earnings in the three
months ended June 30, 2008.

13. Related Party Transactions

General
Partner

General
and administrative expenses, including shore side employee expenses, certain
facility and lease costs, and wages and benefits for crew members, are incurred
directly by the Partnerships general partner. These amounts are reimbursable
by the Partnership pursuant to the partnership agreement. Reimbursable amounts
expensed by the Partnership were $14,267 and $14,000, for the three months
ended June 30, 2008 and June 30, 2007, respectively, and $28,790 and $26,708
for the six months ended June 30, 2008 and June 30, 2007, respectively.

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 of the Partnership. The affiliated companies will 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 June 30,
2008 and 2007, the Partnership paid $108 and $103, respectively, in connection
with the lease and received $89 and $94, respectively, from its related
parties. For the six months ended June 30, 2008 and 2007, the Partnership paid
$215 and $205, respectively, in connection with the lease and received $184 and
$162, respectively, from its related parties.

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.

- 16 -

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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 months ended June 30, 2008 and 2007, the Partnership recorded $292 and
$45, respectively, in income related to this management agreement; however
these amounts were eliminated in consolidation. For the six months ended June
30, 2008 and 2007, the Partnership recorded $626 and $62, respectively, in
income related to this management agreement; however these amounts were
eliminated in consolidation.

In
December 2007, Product Manager agreed to assume responsibility for certain site
supervision activities previously performed by the Joint Venture in exchange
for fees that will total $1,000 per vessel constructed, subject to certain limitations,
in addition to the oversight fees. For the three and six months ended June 30,
2008 Product Manager recognized $292 and $626, respectively, in fees for these
site supervision activities, which were eliminated in consolidation.

Third
Party Joint Venture Investors

As
a result of the formation the Joint Venture, the Partnership considers the
third party investors in the Joint Venture, led by affiliates of The Blackstone
Group (the Joint Venture Investors), to be related parties. In connection with
the formation of the Joint Venture, the Joint Venture paid fees of $10,788 to
the Joint Venture Investors. For the three months ended June 30, 2008 and 2007,
the Joint Venture has paid interest of $2,084 and $1,252, respectively, to the
Joint Venture Investors. For the six months ended June 30, 2008 and 2007, the
Joint Venture has paid interest of $3,822 and $2,454, respectively, to the
Joint Venture Investors.

Director
Compensation

On
February 6, 2008, the Board of Directors of the general partner approved the
following:

| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | That each non-employee
  director (other than Messrs. Macey and Newhouse) be issued 3,065 common units
  of the Partnership on April 1, 2008, which units are fully vested;                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                        
| | · | that directors M. William
  Macey and Douglas Newhouse be paid fees equivalent to the fees paid to the
  other non-employee directors for their Board and committee services, for
  their services as members of the Board of Directors and for their service on
  various committees of the Board; and
| |   |                                                                                                                                                                                                                                                                                                        
| | · | that William Kearns be
  paid an additional annual retainer of $12 for serving as lead director of the
  Board.                                                                                                                                                                                        

Mr.
Macey is a co-founder and managing partner of Sterling Investment Partners,
L.P. and Sterling Investment Partners II, L.P. Mr. Newhouse is a co-founder
and managing partner of Sterling Investment Partners, L.P. and Sterling
Investment Partners II, L.P. Sterling/US Shipping L.P., by virtue of its right
to elect a majority of the Board of Shipping Master, may be deemed to
beneficially own the securities owned by Shipping Master. Shipping Master owns
100% of the Partnerships general partner and the Partnerships 6,899,968
subordinated units outstanding.

14. Commitments and Contingencies

Claims
and Litigation

At
June 30, 2008 and December 31, 2007, the Partnership has a liability for total
claims exposure, both insured and uninsured, of $2,213 and $2,520,
respectively, and a corresponding receivable from the insurance carrier of
$3,256 and $2,999, respectively.

- 17 -

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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 Partnership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 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, although the Partnership had
an option to cancel the fourth barge, which it exercised immediately prior to
its expiration on June 30, 2008. In 2006, the Partnership entered into a
contract for the construction of three tugs with Eastern, which will be joined
with the barges to complete three new ATB units. The contract with Eastern
included an option to construct and deliver an additional tug which would have
been combined with the fourth barge referenced above; however, the Partnership
let this option expire in connection with the cancellation of the contract to
construct the fourth barge. The total construction cost anticipated for the
first three new ATB units is approximately $67,000 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 June 30, 2008 relating to the first three ATB units
is $12,828. The Partnership expects that the first two of these ATB units will
be completed in August 2008 and November 2008, respectively, and the third ATB
unit to be completed in August 2009. As of June 30, 2008, the Partnership made
payments totaling $146,231 related to the first three ATBs and had in escrow
approximately $31,019, plus $26,417 of funds drawn from the escrow account in
anticipation of payments due in the third quarter of 2008. These escrowed
amounts and funds drawn represent the estimated cost to substantially complete
construction of the first three ATBs under construction at MMG and Eastern.

During
the quarter ended March 31, 2008, the Partnership determined that the fourth
ATB unit referenced above was impaired, as the Partnership did not obtain
financing for its construction, and assessed the fair value of the construction
in progress of this ATB unit at zero, which resulted in a non-cash impairment
charge of $5,720, which includes $3,831 previously paid for construction of the
barge portion of this ATB unit, $1,394 for deposits on certain owner furnished
equipment, and $495 of capitalized interest costs. In the second quarter of
2008, the Partnership exercised its cancellation option. In addition, the
Partnership may be required to make additional payments for certain owner
furnished equipment.

Joint
Venture Commitments

On
August 7, 2006 the Partnership entered into the Joint Venture to finance the
construction of the first five petroleum tankers. The Joint Venture Investors
have committed to provide an aggregate of $105,000 of equity financing and the
Partnership has committed to provide $70,000 of equity financing to the Joint
Venture, of which approximately $51,504 was paid through June 30, 2008. The
Partnerships remaining commitment of $18,496 is secured by a letter of credit
for the benefit of the Joint Venture, and the Partnership has segregated an
equivalent amount of cash into an escrow account to meet such obligations. In
addition, the Joint Venture entered into a revolving notes facility agreement
pursuant to which the Joint Venture Investors have made available $325,000 of
revolving credit loans to finance construction of the tankers, of which $94,561 has
been borrowed at June 30, 2008.

- 18 -

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Tanker
Commitments

The
Partnership, through its subsidiary, Product Carriers, entered into a contract
with NASSCO for the construction of nine 49,000 dwt double-hulled tankers. The
Partnership currently expects the cost to construct these nine tankers to
aggregate approximately $1.2 billion (including an estimate for price
escalation based on projected increases in certain published price indexes),
exclusive of capitalized interest. Upon formation of the Joint Venture, Product
Carriers assigned its rights and obligations with respect to the construction
of the first five tankers to the Joint Venture. The Joint Venture has the right
to elect to have rights and obligations under the NASSCO contract to construct
up to four additional tankers assigned to the Joint Venture at specified times.
NASSCO released Product Carriers from any obligation under the construction
contract relating to the first five tankers and will release Product Carriers
from any obligation under the construction contract relating to tankers six
through nine to the extent the rights with respect to such tankers are assigned
to the Joint Venture. If the Joint Venture elects not to construct the last
four tankers, Product Carriers would be obligated to obtain alternative
financing for their construction or to transfer the shipyard slots. In such
event, it is possible that Product Carriers will not be able to obtain the
necessary financing on acceptable terms or at all. If Product Carriers is
unable to obtain the financing for these four tankers, it is obligated to reimburse
NASSCO for any damages incurred by NASSCO as a result of these tankers not
being constructed, or if they are transferred to a third party at a loss to
NASSCO, up to a maximum of $10,000 (plus costs and expenses incurred by NASSCO)
for each such tanker, with such amounts being funded solely out of monies
received by Product Carriers in respect of its equity investment in the first
five vessels constructed by the Joint Venture. In June 2008, the Partnership
extended until September 21, 2008 the expiration date of the option for the
Joint Venture Investors to elect to finance the construction of the sixth and
seventh vessels to be constructed under the Partnerships contract with NASSCO.

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 were 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
were calculated on a monthly basis and subject to a final true-up following
expiration of the support agreement, which true-up is currently ongoing. 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.

15. Supplemental Guarantor Information

Set
forth below is additional information regarding the financial position, results
of operations and cash flows of U.S. Shipping Partners L.P. (the Parent) and
U.S. Shipping Finance Corp. (Subsidiary Issuer, together with the Parent, 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 comprised of Product
Carriers and the Joint Venture and its subsidiaries. All of the Partnerships
wholly-owned subsidiaries other than the non-guarantor subsidiaries guarantee
the Notes on a full and unconditional, joint and several basis. There are no
restrictions on the ability of U.S. Shipping Partners L.P. to obtain funds from
its wholly owned subsidiaries.

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

- 19 -

---



U.S. Shipping Partners L.P. 
Unaudited Consolidating Balance Sheet 
As of June 30, 2008 
(in thousands)

|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|------------------------------------------------------- |  | -------- | ------- | --------------------- | - | ------------------------ | - | --------------------------------- | ------- | ----------- | - | ------- |  | - | -------- | - | - | ------- | -
|                                                        |  | Parent * |         | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |         | Adjustments |   | Total   | 
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         | 
|Assets                                                  |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Current assets                                          |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Cash and equivalents                                    |  | $        |        |                       | $ |                         |   | $                                 | 38,077  |             | $ | 6       |  | $ |         |   | $ | 38,083  |  
|Current portion of restricted cash and
equivalents      |  |          |        |                       |   |                         |   |                                   | 49,515  |             |   |        |  |   |         |   |   | 49,515  |  
|Accounts receivable, net                                |  |          |        |                       |   |                         |   |                                   | 8,169   |             |   |        |  |   |         |   |   | 8,169   |  
|Prepaid expenses and other current assets               |  |          |        |                       |   |                         |   |                                   | 14,752  |             |   | 33      |  |   |         |   |   | 14,785  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total current assets                                    |  |          |        |                       |   |                         |   |                                   | 110,513 |             |   | 39      |  |   |         |   |   | 110,552 |  
|Investment in subsidiaries, net                         |  |          | 262,847 |                       |   |                         |   |                                   |        |             |   |        |  |   | (262,847 | ) |   |        |  
|Intercompany receivable                                 |  |          | 273,895 |                       |   | 70,214                   |   |                                   |        |             |   |        |  |   | (344,109 | ) |   |        |  
|Restricted cash and equivalents, net of current portion |  |          |        |                       |   |                         |   |                                   |        |             |   |        |  |   |         |   |   |        |  
|Vessels and equipment, net                              |  |          |        |                       |   |                         |   |                                   | 415,342 |             |   | 204,161 |  |   |         |   |   | 619,503 |  
|Deferred financing costs, net                           |  |          | 8,660   |                       |   | 3,795                    |   |                                   |        |             |   | 8,178   |  |   | (3,795   | ) |   | 16,838  |  
|Other assets                                            |  |          | 838     |                       |   |                         |   |                                   | 1,064   |             |   | 2,296   |  |   |         |   |   | 4,198   |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total assets                                            |  | $        | 546,240 |                       | $ | 74,009                   |   | $                                 | 526,919 |             | $ | 214,674 |  | $ | (610,751 | ) | $ | 751,091 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Liabilities and Partners Capital                       |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Current liabilities                                     |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Current portion of long-term debt                       |  | $        | 3,100   |                       | $ |                         |   | $                                 |        |             | $ |        |  | $ |         |   | $ | 3,100   |  
|Accounts payable                                        |  |          |        |                       |   |                         |   |                                   | 14,856  |             |   |        |  |   |         |   |   | 14,856  |  
|Due to affiliates                                       |  |          |        |                       |   |                         |   |                                   | 907     |             |   | 241     |  |   |         |   |   | 1,148   |  
|Deferred revenue                                        |  |          |        |                       |   |                         |   |                                   | 1,085   |             |   |        |  |   |         |   |   | 1,085   |  
|Accrued expenses and other liabilities                  |  |          |        |                       |   |                         |   |                                   | 15,260  |             |   | 11,661  |  |   |         |   |   | 26,921  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total current liabilities                               |  |          | 3,100   |                       |   |                         |   |                                   | 32,108  |             |   | 11,902  |  |   |         |   |   | 47,110  |  
|Intercompany payable                                    |  |          |        |                       |   |                         |   |                                   | 273,895 |             |   |        |  |   | (273,895 | ) |   |        |  
|Long-term debt, net of current portion                  |  |          | 421,147 |                       |   | 100,000                  |   |                                   |        |             |   | 94,561  |  |   | (100,000 | ) |   | 515,708 |  
|Deferred income taxes                                   |  |          |        |                       |   |                         |   |                                   | 182     |             |   |        |  |   |         |   |   | 182     |  
|Other liabilities                                       |  |          | 9,142   |                       |   |                         |   |                                   | 1,017   |             |   |        |  |   |         |   |   | 10,159  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total liabilities                                       |  |          | 433,389 |                       |   | 100,000                  |   |                                   | 307,202 |             |   | 106,463 |  |   | (373,895 | ) |   | 573,159 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Noncontrolling interest in Joint Venture                |  |          |        |                       |   |                         |   |                                   |        |             |   | 65,081  |  |   |         |   |   | 65,081  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Commitments and contingencies                           |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Partners Capital                                       |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Partners capital                                       |  |          | 120,776 |                       |   | (25,991                  | ) |                                   | 219,717 |             |   | 43,130  |  |   | (236,856 | ) |   | 120,776 |  
|Accumulated other comprehensive loss                    |  |          | (7,925  | )                     |   |                         |   |                                   |        |             |   |        |  |   |         |   |   | (7,925  | )
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total partners capital                                 |  |          | 112,851 |                       |   | (25,991                  | ) |                                   | 219,717 |             |   | 43,130  |  |   | (236,856 | ) |   | 112,851 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total liabilities and partners
capital                 |  | $        | 546,240 |                       | $ | 74,009                   |   | $                                 | 526,919 |             | $ | 214,674 |  | $ | (610,751 | ) | $ | 751,091 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  

* 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.

- 20 -

---



U.S. Shipping Partners L.P. 
Unaudited Consolidating Balance Sheet 
As of December 31, 2007 
(in thousands)

|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|------------------------------------------------------- |  | -------- | ------- | --------------------- | - | ------------------------ | - | --------------------------------- | ------- | ----------- | - | ------- |  | - | -------- | - | - | ------- | -
|                                                        |  | Parent * |         | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |         | Adjustments |   | Total   | 
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         | 
|Assets                                                  |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Current assets                                          |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Cash and equivalents                                    |  | $        |        |                       | $ |                         |   | $                                 | 21,596  |             | $ | 8       |  | $ |         |   | $ | 21,604  |  
|Current portion of restricted cash and
equivalents      |  |          |        |                       |   |                         |   |                                   | 113,960 |             |   |        |  |   |         |   |   | 113,960 |  
|Accounts receivable, net                                |  |          |        |                       |   |                         |   |                                   | 11,934  |             |   |        |  |   |         |   |   | 11,934  |  
|Prepaid expenses and other current assets               |  |          |        |                       |   |                         |   |                                   | 10,489  |             |   | 194     |  |   |         |   |   | 10,683  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total current assets                                    |  |          |        |                       |   |                         |   |                                   | 157,979 |             |   | 202     |  |   |         |   |   | 158,181 |  
|Investment in subsidiaries, net                         |  |          | 245,914 |                       |   |                         |   |                                   |        |             |   |        |  |   | (245,914 | ) |   |        |  
|Intercompany receivable                                 |  |          | 303,466 |                       |   | 76,715                   |   |                                   |        |             |   |        |  |   | (380,181 | ) |   |        |  
|Restricted cash and equivalents, net of current portion |  |          |        |                       |   |                         |   |                                   | 11,322  |             |   |        |  |   |         |   |   | 11,322  |  
|Vessels and equipment, net                              |  |          |        |                       |   |                         |   |                                   | 388,324 |             |   | 101,140 |  |   |         |   |   | 489,464 |  
|Deferred financing costs, net                           |  |          | 9,587   |                       |   | 4,108                    |   |                                   |        |             |   | 9,432   |  |   | (4,108   | ) |   | 19,019  |  
|Other assets                                            |  |          | 955     |                       |   |                         |   |                                   | 2,137   |             |   | 1,950   |  |   |         |   |   | 5,042   |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total assets                                            |  | $        | 559,922 |                       | $ | 80,823                   |   | $                                 | 559,762 |             | $ | 112,724 |  | $ | (630,203 | ) | $ | 683,028 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Liabilities and Partners Capital                       |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Current liabilities                                     |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Current portion of long-term debt                       |  | $        | 3,100   |                       | $ |                         |   | $                                 |        |             | $ |        |  | $ |         |   | $ | 3,100   |  
|Accounts payable                                        |  |          |        |                       |   |                         |   |                                   | 9,668   |             |   |        |  |   |         |   |   | 9,668   |  
|Due to affiliates                                       |  |          |        |                       |   |                         |   |                                   | 3,197   |             |   | 196     |  |   |         |   |   | 3,393   |  
|Deferred revenue                                        |  |          |        |                       |   |                         |   |                                   | 1,193   |             |   |        |  |   |         |   |   | 1,193   |  
|Accrued expenses and other liabilities                  |  |          |        |                       |   |                         |   |                                   | 15,359  |             |   | 15,966  |  |   |         |   |   | 31,325  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total current liabilities                               |  |          | 3,100   |                       |   |                         |   |                                   | 29,417  |             |   | 16,162  |  |   |         |   |   | 48,679  |  
|Intercompany payable                                    |  |          |        |                       |   |                         |   |                                   | 303,466 |             |   |        |  |   | (303,466 | ) |   |        |  
|Long-term debt, net of current portion                  |  |          | 415,697 |                       |   | 100,000                  |   |                                   |        |             |   | 41,230  |  |   | (100,000 | ) |   | 456,927 |  
|Deferred income taxes                                   |  |          |        |                       |   |                         |   |                                   | 2,145   |             |   |        |  |   |         |   |   | 2,145   |  
|Other liabilities                                       |  |          | 10,092  |                       |   |                         |   |                                   | 828     |             |   |        |  |   |         |   |   | 10,920  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total liabilities                                       |  |          | 428,889 |                       |   | 100,000                  |   |                                   | 335,856 |             |   | 57,392  |  |   | (403,466 | ) |   | 518,671 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Noncontrolling interest in Joint Venture                |  |          |        |                       |   |                         |   |                                   |        |             |   | 33,324  |  |   |         |   |   | 33,324  |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Commitments and contingencies                           |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Partners Capital                                       |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Partners capital                                       |  |          | 139,263 |                       |   | (19,177                  | ) |                                   | 223,906 |             |   | 22,008  |  |   | (226,737 | ) |   | 139,263 |  
|Accumulated other comprehensive loss                    |  |          | (8,230  | )                     |   |                         |   |                                   |        |             |   |        |  |   |         |   |   | (8,230  | )
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total partners capital                                 |  |          | 131,033 |                       |   | (19,177                  | ) |                                   | 223,906 |             |   | 22,008  |  |   | (226,737 | ) |   | 131,033 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  
|Total liabilities and partners
capital                 |  | $        | 559,922 |                       | $ | 80,823                   |   | $                                 | 559,762 |             | $ | 112,724 |  | $ | (630,203 | ) | $ | 683,028 |  
|                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  |   |          |   |   |         |  

* 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.

- 21 -

---



U.S. Shipping Partners L.P. 
Unaudited Consolidating Statement of Operations 
Three Months Ended June 30, 2008 
(in thousands)

|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|--------------------------------------------------------------- |  | -------- | ------ | --------------------- | - | ------------------------ | - | --------------------------------- | ------ | ----------- | - | ----- | - | - | ------ | - | - | ------ | -
|                                                                |  | Parent * |        | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |        | Adjustments |   | Total |  
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |  
|                                                               
|Revenues                                                        |  | $        |       |                       | $ |                         |   | $                                 | 49,819 |             | $ |      |   | $ |       |   | $ | 49,819 |  
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Operating expenses                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Vessel operating expenses                                       |  |          |       |                       |   |                         |   |                                   | 16,384 |             |   |      |   |   |       |   |   | 16,384 |  
|Voyage expenses                                                 |  |          |       |                       |   |                         |   |                                   | 17,331 |             |   |      |   |   |       |   |   | 17,331 |  
|General and administrative expenses                             |  |          | 146    |                       |   |                         |   |                                   | 3,505  |             |   | 360   |   |   |       |   |   | 4,011  |  
|Depreciation and amortization                                   |  |          |       |                       |   |                         |   |                                   | 10,445 |             |   |      |   |   |       |   |   | 10,445 |  
|Other expense                                                   |  |          |       |                       |   |                         |   |                                   | 45     |             |   |      |   |   |       |   |   | 45     |  
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Total operating expenses, net                                   |  |          | 146    |                       |   |                         |   |                                   | 47,710 |             |   | 360   |   |   |       |   |   | 48,216 |  
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Operating (loss) income                                         |  |          | (146   | )                     |   |                         |   |                                   | 2,109  |             |   | (360  | ) |   |       |   |   | 1,603  |  
|Interest expense                                                |  |          | 6,879  |                       |   | 3,406                    |   |                                   |       |             |   |      |   |   | (3,406 | ) |   | 6,879  |  
|Interest income                                                 |  |          |       |                       |   |                         |   |                                   | (655   | )           |   |      |   |   |       |   |   | (655   | )
|Net losses (gains) on derivative financial
  instruments        |  |          | 25     |                       |   |                         |   |                                   | (1     | )           |   | (610  | ) |   |       |   |   | (586   | )
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|(Loss) income before income taxes and
  noncontrolling interest |  |          | (7,050 | )                     |   | (3,406                   | ) |                                   | 2,765  |             |   | 250   |   |   | 3,406  |   |   | (4,035 | )
|Provision for income taxes                                      |  |          |       |                       |   |                         |   |                                   | (1,514 | )           |   |      |   |   |       |   |   | (1,514 | )
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|(Loss) income before noncontrolling
  interest                  |  |          | (7,050 | )                     |   | (3,406                   | ) |                                   | 4,279  |             |   | 250   |   |   | 3,406  |   |   | (2,521 | )
|Equity in earnings of unconsolidated
  subsidiaries             |  |          | 4,367  |                       |   |                         |   |                                   |       |             |   |      |   |   | (4,367 | ) |   |       |  
|Noncontrolling interest in Joint Venture
  losses               |  |          |       |                       |   |                         |   |                                   |       |             |   | (162  | ) |   |       |   |   | (162   | )
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Net (loss) income                                               |  | $        | (2,683 | )                     | $ | (3,406                   | ) | $                                 | 4,279  |             | $ | 88    |   | $ | (961   | ) | $ | (2,683 | )
|                                                                |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  

* 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.

- 22 -

---



U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Operations 
Six Months Ended June 30, 2008 
(in thousands)

|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|--------------------------------------------------------------- |  | -------- | ------- | --------------------- | - | ------------------------ | - | --------------------------------- | ------- | ----------- | - | ----- | - | - | ------ | - | - | ------- | -
|                                                                |  | Parent * |         | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |         | Adjustments |   | Total |  
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |  
|                                                               
|Revenues                                                        |  | $        |        |                       | $ |                         |   | $                                 | 101,323 |             | $ |      |   | $ |       |   | $ | 101,323 |  
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|Operating expenses                                              |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|Vessel
  operating expenses                                     |  |          |        |                       |   |                         |   |                                   | 33,405  |             |   |      |   |   |       |   |   | 33,405  |  
|Voyage expenses                                                 |  |          |        |                       |   |                         |   |                                   | 31,010  |             |   |      |   |   |       |   |   | 31,010  |  
|General and
  administrative expenses                           |  |          | 183     |                       |   |                         |   |                                   | 7,024   |             |   | 798   |   |   |       |   |   | 8,005   |  
|Depreciation
  and amortization                                 |  |          |        |                       |   |                         |   |                                   | 20,949  |             |   |      |   |   |       |   |   | 20,949  |  
|Other expense                                                   |  |          |        |                       |   |                         |   |                                   | 5,832   |             |   |      |   |   |       |   |   | 5,832   |  
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|Total operating
  expenses, net                                 |  |          | 183     |                       |   |                         |   |                                   | 98,220  |             |   | 798   |   |   |       |   |   | 99,201  |  
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|Operating
  (loss) income                                       |  |          | (183    | )                     |   |                         |   |                                   | 3,103   |             |   | (798  | ) |   |       |   |   | 2,122   |  
|Interest
  expense                                              |  |          | 14,770  |                       |   | 6,814                    |   |                                   |        |             |   |      |   |   | (6,814 | ) |   | 14,770  |  
|Interest income                                                 |  |          |        |                       |   |                         |   |                                   | (1,695  | )           |   |      |   |   |       |   |   | (1,695  | )
|Net (gains)
  losses on derivative financial instruments        |  |          | (682    | )                     |   |                         |   |                                   |        |             |   | (346  | ) |   |       |   |   | (1,028  | )
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|(Loss) income
  before income taxes and noncontrolling interest |  |          | (14,271 | )                     |   | (6,814                   | ) |                                   | 4,798   |             |   | (452  | ) |   | 6,814  |   |   | (9,925  | )
|Provision for
  income taxes                                    |  |          |        |                       |   |                         |   |                                   | (1,222  | )           |   |      |   |   |       |   |   | (1,222  | )
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|(Loss) income
  before noncontrolling interest                  |  |          | (14,271 | )                     |   | (6,814                   | ) |                                   | 6,020   |             |   | (452  | ) |   | 6,814  |   |   | (8,703  | )
|Equity in
  earnings of unconsolidated subsidiaries             |  |          | 5,810   |                       |   |                         |   |                                   |        |             |   |      |   |   | (5,810 | ) |   |        |  
|Noncontrolling
  interest in Joint Venture losses               |  |          |        |                       |   |                         |   |                                   |        |             |   | 242   |   |   |       |   |   | 242     |  
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  
|Net (loss)
  income                                             |  | $        | (8,461  | )                     | $ | (6,814                   | ) | $                                 | 6,020   |             | $ | (210  | ) | $ | 1,004  |   | $ | (8,461  | )
|                                                                |  |          |         |                       |   |                          |   |                                   |         |             |   |       |   |   |        |   |   |         |  

* Both the Parent and the
Subsidiary Issuer are co-issuers of $100,000 in Notes. Accordingly, the
interest expense in respect of the Notes has been presented as an expense of
both entities in the above consolidating statement of operations.

** Consists of the Joint Venture and the Partnerships wholly-owned
subsidiary that owns its investment in the Joint Venture.

- 23 -

---



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

|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|------------------------------------------------------------- |  | -------- | ------ | --------------------- | - | ------------------------ | - | --------------------------------- | ------ | ----------- | - | ----- | - | - | ------ | - | - | ------ | -
|                                                              |  | Parent * |        | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |        | Adjustments |   | Total |  
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |  
|                                                             
|Revenues                                                      |  | $        |       |                       | $ |                         |   | $                                 | 45,621 |             | $ |      |   | $ |       |   | $ | 45,621 |  
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Operating expenses                                            |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Vessel operating expenses                                     |  |          |       |                       |   |                         |   |                                   | 17,407 |             |   |      |   |   |       |   |   | 17,407 |  
|Voyage expenses                                               |  |          |       |                       |   |                         |   |                                   | 8,712  |             |   |      |   |   |       |   |   | 8,712  |  
|General and administrative expenses                           |  |          | 37     |                       |   |                         |   |                                   | 4,129  |             |   | 75    |   |   |       |   |   | 4,241  |  
|Depreciation and amortization                                 |  |          |       |                       |   |                         |   |                                   | 9,054  |             |   |      |   |   |       |   |   | 9,054  |  
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Total operating expenses, net                                 |  |          | 37     |                       |   |                         |   |                                   | 39,302 |             |   | 75    |   |   |       |   |   | 39,414 |  
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Operating income (loss)                                       |  |          | (37    | )                     |   |                         |   |                                   | 6,319  |             |   | (75   | ) |   |       |   |   | 6,207  |  
|Interest expense                                              |  |          | 6,654  |                       |   | 3,405                    |   |                                   |       |             |   | 1     |   |   | (3,405 | ) |   | 6,655  |  
|Interest income                                               |  |          |       |                       |   |                         |   |                                   | (2,570 | )           |   | (2    | ) |   |       |   |   | (2,572 | )
|Gain on derivative financial instruments                      |  |          | (173   | )                     |   |                         |   |                                   |       |             |   | (731  | ) |   |       |   |   | (904   | )
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Income (loss) before income taxes and
noncontrolling interest |  |          | (6,518 | )                     |   | (3,405                   | ) |                                   | 8,889  |             |   | 657   |   |   | 3,405  |   |   | 3,028  |  
|Provision for income taxes                                    |  |          |       |                       |   |                         |   |                                   | 202    |             |   |      |   |   |       |   |   | 202    |  
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Income (loss) before noncontrolling
interest                  |  |          | (6,518 | )                     |   | (3,405                   | ) |                                   | 8,687  |             |   | 657   |   |   | 3,405  |   |   | 2,826  |  
|Equity in earnings of unconsolidated subsidiaries             |  |          | 8,926  |                       |   |                         |   |                                   |       |             |   |      |   |   | (8,926 | ) |   |       |  
|Noncontrolling interest in Joint Venture income               |  |          |       |                       |   |                         |   |                                   |       |             |   | (418  | ) |   |       |   |   | (418   | )
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  
|Net income (loss)                                             |  | $        | 2,408  |                       | $ | (3,405                   | ) | $                                 | 8,687  |             | $ | 239   |   | $ | (5,521 | ) | $ | 2,408  |  
|                                                              |  |          |        |                       |   |                          |   |                                   |        |             |   |       |   |   |        |   |   |        |  

* 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.

- 24 -

---



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

|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|------------------------------------------------------------- |  | -------- | ------- | --------------------- | - | ------------------------ | - | --------------------------------- | ------ | ----------- | - | ----- | - | - | ------- | - | - | ------ | -
|                                                              |  | Parent * |         | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |        | Adjustments |   | Total |  
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |  
|                                                             
|Revenues                                                      |  | $        |        |                       | $ |                         |   | $                                 | 87,703 |             | $ |      |   | $ |        |   | $ | 87,703 |  
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|Operating expenses                                            |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|Vessel operating expenses                                     |  |          |        |                       |   |                         |   |                                   | 32,325 |             |   |      |   |   |        |   |   | 32,325 |  
|Voyage expenses                                               |  |          |        |                       |   |                         |   |                                   | 16,149 |             |   |      |   |   |        |   |   | 16,149 |  
|General and administrative expenses                           |  |          | 37      |                       |   |                         |   |                                   | 7,836  |             |   | 133   |   |   |        |   |   | 8,006  |  
|Depreciation and amortization                                 |  |          |        |                       |   |                         |   |                                   | 18,102 |             |   |      |   |   |        |   |   | 18,102 |  
|Other expense (income)                                        |  |          |        |                       |   |                         |   |                                   | (3,486 | )           |   |      |   |   |        |   |   | (3,486 | )
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|Total operating expenses, net                                 |  |          | 37      |                       |   |                         |   |                                   | 70,926 |             |   | 133   |   |   |        |   |   | 71,096 |  
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|Operating income (loss)                                       |  |          | (37     | )                     |   |                         |   |                                   | 16,777 |             |   | (133  | ) |   |        |   |   | 16,607 |  
|Interest expense                                              |  |          | 13,571  |                       |   | 6,821                    |   |                                   |       |             |   | 1     |   |   | (6,821  | ) |   | 13,572 |  
|Interest income                                               |  |          |        |                       |   |                         |   |                                   | (5,242 | )           |   | (5    | ) |   |        |   |   | (5,247 | )
|Gain on derivative financial instruments                      |  |          | (173    | )                     |   |                         |   |                                   |       |             |   | (731  | ) |   |        |   |   | (904   | )
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|Income (loss) before income taxes and
noncontrolling interest |  |          | (13,435 | )                     |   | (6,821                   | ) |                                   | 22,019 |             |   | 602   |   |   | 6,821   |   |   | 9,186  |  
|Provision for income taxes                                    |  |          |        |                       |   |                         |   |                                   | 622    |             |   |      |   |   |        |   |   | 622    |  
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|Income (loss) before noncontrolling
interest                  |  |          | (13,435 | )                     |   | (6,821                   | ) |                                   | 21,397 |             |   | 602   |   |   | 6,821   |   |   | 8,564  |  
|Equity in earnings of unconsolidated subsidiaries             |  |          | 21,592  |                       |   |                         |   |                                   |       |             |   |      |   |   | (21,592 | ) |   |       |  
|Noncontrolling interest in Joint Venture income               |  |          |        |                       |   |                         |   |                                   |       |             |   | (407  | ) |   |        |   |   | (407   | )
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  
|Net income (loss)                                             |  | $        | 8,157   |                       | $ | (6,821                   | ) | $                                 | 21,397 |             | $ | 195   |   | $ | (14,771 | ) | $ | 8,157  |  
|                                                              |  |          |         |                       |   |                          |   |                                   |        |             |   |       |   |   |         |   |   |        |  

* 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.

- 25 -

---



U.S. Shipping Partners L.P.
Unaudited Consolidating Statement of Cash Flows 
For the Six Months Ended June 30, 2008 
(in thousands)

|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|------------------------------------------------------------------------------------------------------- |  | -------- | ------- | --------------------- | - | ------------------------ | - | --------------------------------- | ------- | ----------- | - | -------- | - | - | ------- | - | - | -------- | -
|                                                                                                        |  | Parent * |         | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |         | Adjustments |   | Total    |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |  
|                                                                                                       
|Cash flows from operating activities                                                                    |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Net (loss) income                                                                                       |  | $        | (8,461  | )                     | $ | (6,814                   | ) | $                                 | 6,020   |             | $ | (210     | ) | $ | 1,004   |   | $ | (8,461   | )
|Adjustments to reconcile net (loss) income to net cash (used in)
  provided by operating activities     |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Depreciation of vessels and equipment, and
amortization of drydock
  costs and deferred financing costs |  |          | 926     |                       |   | 314                      |   |                                   | 20,945  |             |   |         |   |   | (314    | ) |   | 21,871   |  
|Impairment of construction-in-progress                                                                  |  |          |        |                       |   |                         |   |                                   | 5,712   |             |   |         |   |   |        |   |   | 5,712    |  
|Loss on sale of surplus equipment                                                                       |  |          |        |                       |   |                         |   |                                   | 120     |             |   |         |   |   |        |   |   | 120      |  
|Equity compensation                                                                                     |  |          | 183     |                       |   |                         |   |                                   |        |             |   |         |   |   |        |   |   | 183      |  
|Provision for accounts receivable                                                                       |  |          |        |                       |   |                         |   |                                   | 50      |             |   |         |   |   |        |   |   | 50       |  
|Noncontrolling interest in Joint Venture
loss                                                           |  |          |        |                       |   |                         |   |                                   |        |             |   | (242     | ) |   |        |   |   | (242     | )
|(Loss) gain on derivative financial
instruments                                                         |  |          | (682    | )                     |   |                         |   |                                   |        |             |   | (346     | ) |   |        |   |   | (1,028   | )
|Deferred income taxes                                                                                   |  |          |        |                       |   |                         |   |                                   | (1,290  | )           |   |         |   |   |        |   |   | (1,290   | )
|Capitalized drydock costs                                                                               |  |          |        |                       |   |                         |   |                                   | (2,551  | )           |   |         |   |   |        |   |   | (2,551   | )
|Equity in earnings of unconsolidated
subsidiaries                                                       |  |          | (5,810  | )                     |   |                         |   |                                   |        |             |   |         |   |   | 5,810   |   |   |         |  
|Changes in assets and liabilities:                                                                      |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Accounts receivable                                                                                     |  |          |        |                       |   |                         |   |                                   | 3,263   |             |   |         |   |   |        |   |   | 3,263    |  
|Prepaid expenses and other current assets                                                               |  |          |        |                       |   |                         |   |                                   | (2,851  | )           |   |         |   |   |        |   |   | (2,851   | )
|Other assets                                                                                            |  |          |        |                       |   |                         |   |                                   |        |             |   |         |   |   |        |   |   |         |  
|Accounts payable                                                                                        |  |          |        |                       |   |                         |   |                                   | 255     |             |   |         |   |   |        |   |   | 255      |  
|Deferred revenue                                                                                        |  |          |        |                       |   |                         |   |                                   | (108    | )           |   |         |   |   |        |   |   | (108     | )
|Accrued expenses and other liabilities                                                                  |  |          |        |                       |   |                         |   |                                   | (1,074  | )           |   | (495     | ) |   |        |   |   | (1,569   | )
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Net cash (used in) provided by operating
activities                                                     |  |          | (13,844 | )                     |   | (6,500                   | ) |                                   | 28,491  |             |   | (1,293   | ) |   | 6,500   |   |   | 13,354   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Cash flows from investing activities                                                                    |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Change in restricted cash and equivalents, net                                                          |  |          |        |                       |   |                         |   |                                   | 75,767  |             |   |         |   |   |        |   |   | 75,767   |  
|Sale of surplus equipment                                                                               |  |          |        |                       |   |                         |   |                                   | 280     |             |   |         |   |   |        |   |   | 280      |  
|Construction of vessels and equipment                                                                   |  |          |        |                       |   |                         |   |                                   | (48,779 | )           |   | (105,371 | ) |   |        |   |   | (154,150 | )
|Gain on derivative financial instruments                                                                |  |          |        |                       |   |                         |   |                                   | 657     |             |   |         |   |   |        |   |   | 657      |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Net cash provided by (used in) investing
activities                                                     |  |          |        |                       |   |                         |   |                                   | 27,925  |             |   | (105,371 | ) |   |        |   |   | (77,446  | )
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Cash flows from financing activities                                                                    |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Proceeds from borrowings                                                                                |  |          | 7,000   |                       |   |                         |   |                                   |        |             |   |         |   |   |        |   |   | 7,000    |  
|Proceeds from Joint Venture revolver borrowings                                                         |  |          |        |                       |   |                         |   |                                   |        |             |   | 53,331   |   |   |        |   |   | 53,331   |  
|Contribution by noncontrolling interest equity investors in Joint
  Venture                             |  |          |        |                       |   |                         |   |                                   |        |             |   | 53,331   |   |   | (21,332 | ) |   | 31,999   |  
|Repayment of debt                                                                                       |  |          | (1,550  | )                     |   |                         |   |                                   |        |             |   |         |   |   |        |   |   | (1,550   | )
|Intercompany receivable / payable                                                                       |  |          | 18,603  |                       |   | 6,500                    |   |                                   | (39,935 | )           |   |         |   |   | 14,832  |   |   |         |  
|Distributions to partners                                                                               |  |          | (10,209 | )                     |   |                         |   |                                   |        |             |   |         |   |   |        |   |   | (10,209  | )
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Net cash provided by (used in) financing
activities                                                     |  | $        | 13,844  |                       | $ | 6,500                    |   | $                                 | (39,935 | )           | $ | 106,662  |   | $ | (6,500  | ) | $ | 80,571   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                    |  |          |        |                       |   |                         |   |                                   | 16,481  |             |   | (2       | ) |   |        |   |   | 16,479   |  
|Cash and cash equivalents at beginning of period                                                        |  |          |        |                       |   |                         |   |                                   | 21,596  |             |   | 8        |   |   |        |   |   | 21,604   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  
|Cash and cash equivalents at end of period                                                              |  | $        |        |                       | $ |                         |   | $                                 | 38,077  |             | $ | 6        |   | $ |        |   | $ | 38,083   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |          |   |   |         |   |   |          |  

* 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.

- 26 -

---



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

|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|------------------------------------------------------------------------------------------------------- |  | -------- | ------- | --------------------- | - | ------------------------ | - | --------------------------------- | ------- | ----------- | - | ------- | - | - | ------- | - | - | ------- | -
|                                                                                                        |  | Parent * |         | Subsidiary
  Issuer * |   | Guarantor
  Subsidiaries |   | Non-
  Guarantor
  Subsidiaries** |         | Adjustments |   | Total   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |  
|Cash flows from operating activities                                                                    |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Net income (loss)                                                                                       |  | $        | 8,157   |                       | $ | (6,821                   | ) | $                                 | 21,397  |             | $ | 195     |   | $ | (14,771 | ) | $ | 8,157   |  
|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 |  |          | 822     |                       |   | 321                      |   |                                   | 18,102  |             |   |        |   |   | (321    | ) |   | 18,924  |  
|Provision for accounts receivable                                                                       |  |          |        |                       |   |                         |   |                                   | 315     |             |   |        |   |   |        |   |   | 315     |  
|Deferred income taxes                                                                                   |  |          |        |                       |   |                         |   |                                   | (431    | )           |   |        |   |   |        |   |   | (431    | )
|Equity compensation                                                                                     |  |          | 37      |                       |   |                         |   |                                   |        |             |   |        |   |   |        |   |   | 37      |  
|Noncontrolling interest in Joint Venture
income                                                         |  |          |        |                       |   |                         |   |                                   |        |             |   | 407     |   |   |        |   |   | 407     |  
|Gain on derivative financial instruments                                                                |  |          | (173    | )                     |   |                         |   |                                   |        |             |   | (731    | ) |   |        |   |   | (904    | )
|Capitalized drydock costs                                                                               |  |          |        |                       |   |                         |   |                                   | (5,606  | )           |   |        |   |   |        |   |   | (5,606  | )
|Equity in earnings of unconsolidated
subsidiaries                                                       |  |          | (21,592 | )                     |   |                         |   |                                   |        |             |   |        |   |   | 21,592  |   |   |        |  
|Changes in assets and liabilities:                                                                      |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Accounts receivable                                                                                     |  |          |        |                       |   |                         |   |                                   | (103    | )           |   |        |   |   |        |   |   | (103    | )
|Prepaid expenses and other current assets                                                               |  |          |        |                       |   |                         |   |                                   | (1,982  | )           |   | 13      |   |   |        |   |   | (1,969  | )
|Other assets                                                                                            |  |          |        |                       |   |                         |   |                                   | (158    | )           |   |        |   |   |        |   |   | (158    | )
|Accounts payable                                                                                        |  |          |        |                       |   |                         |   |                                   | (92     | )           |   |        |   |   |        |   |   | (92     | )
|Deferred revenue                                                                                        |  |          |        |                       |   |                         |   |                                   | (1,178  | )           |   |        |   |   |        |   |   | (1,178  | )
|Accrued expenses and other liabilities                                                                  |  |          |        |                       |   |                         |   |                                   | 2,094   |             |   | (244    | ) |   |        |   |   | 1,850   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Net cash provided by (used in) operating
activities                                                     |  |          | (12,749 | )                     |   | (6,500                   | ) |                                   | 32,358  |             |   | (360    | ) |   | 6,500   |   |   | 19,249  |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Cash flows from investing activities                                                                    |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Change in restricted cash and equivalents, net                                                          |  |          |        |                       |   |                         |   |                                   | 26,274  |             |   |        |   |   |        |   |   | 26,274  |  
|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                                                                   |  |          |        |                       |   |                         |   |                                   | (49,801 | )           |   | (10,705 | ) |   |        |   |   | (60,506 | )
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Net cash provided by (used in) investing
activities                                                     |  |          | 173     |                       |   |                         |   |                                   | (23,974 | )           |   | (12,629 | ) |   |        |   |   | (36,430 | )
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Cash flows from financing activities                                                                    |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Proceeds from borrowings                                                                                |  |          | 25,000  |                       |   |                         |   |                                   |        |             |   |        |   |   |        |   |   | 25,000  |  
|Contribution by noncontrolling interest equity investors in Joint
  Venture                             |  |          |        |                       |   |                         |   |                                   |        |             |   | 7,459   |   |   | (2,983  | ) |   | 4,476   |  
|Proceeds from Joint Venture revolver borrowings                                                         |  |          |        |                       |   |                         |   |                                   |        |             |   | 5,535   |   |   |        |   |   | 5,535   |  
|Repayment of debt                                                                                       |  |          | (1,388  | )                     |   |                         |   |                                   |        |             |   |        |   |   |        |   |   | (1,388  | )
|Intercompany receivable / payable                                                                       |  |          | 5,708   |                       |   | 6,500                    |   |                                   | (8,691  | )           |   |        |   |   | (3,517  | ) |   |        |  
|Distributions to partners/members                                                                       |  |          | (16,744 | )                     |   |                         |   |                                   |        |             |   |        |   |   |        |   |   | (16,744 | )
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Net cash provided by (used in) financing
activities                                                     |  | $        | 12,576  |                       | $ | 6,500                    |   | $                                 | (8,691  | )           | $ | 12,994  |   | $ | (6,500  | ) | $ | 16,879  |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Net (decrease) increase in cash and cash equivalents                                                    |  |          |        |                       |   |                         |   |                                   | (307    | )           |   | 5       |   |   |        |   |   | (302    | )
|Cash and cash equivalents at beginning of period                                                        |  |          |        |                       |   |                         |   |                                   | 2,686   |             |   |        |   |   |        |   |   | 2,686   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  
|Cash and cash equivalents at end of period                                                              |  | $        |        |                       | $ |                         |   | $                                 | 2,379   |             | $ | 5       |   | $ |        |   | $ | 2,384   |  
|                                                                                                        |  |          |         |                       |   |                          |   |                                   |         |             |   |         |   |   |         |   |   |         |  

* 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.

- 27 -

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

Overview

Description of Business

We
are a leading provider of long-haul marine transportation services, principally
for refined petroleum, petrochemical and commodity chemical products, in the
U.S. domestic coastwise trade. Marine transportation is a vital link in the
distribution of refined petroleum, petrochemical and commodity chemical
products in the United States. Recently, to improve utilization of the ITB
fleet, we have employed three of our ITBs to transport grain overseas for
humanitarian organizations. These transactions are not subject to the
provisions of the Jones Act, but U.S Flag vessels are given preference for
these voyages. 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 (Houston); three
chemical parcel tankers (Parcel Tankers) and one articulated tug barge unit
(ATB) that entered service in July 2007. We have embarked upon a capital
construction program to build additional ATBs and, through a joint venture,
additional tank vessels that upon completion will result in our having one of
the most modern fleets in service. Our primary customers are major oil and
chemical companies.

Significant Challenges of Our Changing
Business Model

Our
business model is changing in the near term. Upon our formation, our six ITBs
transported petroleum products under long-term charters with major petroleum
companies. Our level of revenues and the types of product that we transported
were predictable. However, as a result of the expiration of the Hess support
agreement, which provided us with specified minimum charter rates for our ITBs,
combined with the desire of customers for new vessels and the newbuilding
programs, which have resulted in the supply of Jones Act vessels able to
transport petroleum products not decreasing as we had expected, we anticipate
that our ITBs will operate more in the spot market, which has become more
competitive, than the term charter market. Accordingly, our revenues will be
less predictable and, due to the increasing importance of our specialty chemical
transportation business and our desire to keep our vessels operating, more of
our revenues may be derived from the transportation of products that are not
petroleum based. As a publicly traded master limited partnership, our earnings
are generally not subject to tax, as long as 90% or more of our revenues are
from qualifying income which includes revenue derived from the transportation
of petroleum based products, among other items. Our increasing percentage of
revenue derived from the transportation of non petroleum based products that do
not generate qualifying income has caused us to operate more of our vessels
from entities taxed as corporations, which are subject to entity level taxation
but allow us to exclude this revenue from the 90% qualifying income test (and
allow us to include dividends paid to us by these corporate entities as
qualifying income). This increases our tax burden, and requires us to closely
monitor the level of non qualifying income generated in our non corporate
entities for compliance with the aforementioned 90% rule. We are actively
seeking measures to optimize our capital structure and our legal entity
structure to cope with this changing business model.

Since
our ITBs were under time charters in prior years, we did not require substantial
operations to manage the day-to-day logistical and chartering aspects of the
business. Subsequent to the acquisition of the ITBs, we began to acquire
vessels that transported non petroleum products, including the Chemical
Pioneer, the Charleston, the Sea Ventureand the ATB Freeport. These parcel
tankers and barges differ from our ITBs in that they carry smaller lots and are
designed to carry multiple products simultaneously. We have contracts of
affreightment from chemical customers that historically accounted for the
capacity of these vessels. These contracts of affreightment allow us the
flexibility to employ our vessels as we see fit, and accordingly, we manage the
logistical requirements of these vessels collectively. Additionally, our ITBs are
expected to operate predominantly in the spot market prospectively until their
OPA 90 phase-out date, and are increasingly likely to carry non petroleum
products, as most petroleum customers prefer to contract new double-hulled
vessels under long-term charters. This combination of our ITBs in the spot
market, and the logistical aspects of managing our chemical contracts and grain
voyages, has placed an additional operating burden on us. Our ability to
effectively manage our changing operations is critical to our future success.

- 28 -

---



Additionally,
participation in the spot market requires us to carry higher amounts of working
capital, as under spot charters fuel costs are our responsibility and are paid
at the time fuel is delivered, and not realized economically until payment is
made to USS by the customer. Additionally, payment generally occurs at the
completion of a voyage, compared to time charters, where payment is generally
made by the customer at the beginning of a fixed period of time, such as a
month. In addition, grain voyages, where we are paid following delivery of the
grain to its final destination, tend to be substantially longer in duration
than refined petroleum product voyages. As we add two additional vessels in
2008 and our ITBs participate more in the spot market, USS expects its working
capital requirements to increase. We have limited availability under our credit
facility to finance this increase in working capital requirements.

During
2008 we have been successful in employing three of our ITBs that might
otherwise have been idle in the overseas transportation of grain for
humanitarian organizations. These voyages have different characteristics than
our transportation of refined petroleum products, including longer voyages,
voyages overseas and different revenue and expense recognition policies. These
different characteristics make a comparison of our present results with our
prior results less meaningful. In addition, we do not have any long-term
contracts to transport grain and there can be no assurance that we will be able
to continue to obtain these grain voyages. Furthermore, to the extent more of
our activities involve the transportation of products that do not generate
qualifying income, it will be more difficult for us to insure that at least
90% of our revenue is qualifying income. If less than 90% of our revenue is
qualifying income, we will be taxed as a corporation rather than a
partnership, which may result in a significant reduction in the amount of cash
available for distribution to unitholders.

Liquidity

During
the first half of 2008, all but one of our ITBs began to operate in the spot
market for the transportation of petroleum products, which has increased the
volatility of our revenues and working capital requirements, and decreased the
predictability of our cash flows. Beginning in late March 2008 market
conditions in the spot market deteriorated substantially due to overall
declining economic activity and decreased demand for the domestic coastwise
transportation of petroleum products. Additionally, refinery utilization has
declined considerably, fuel prices for operating our vessels are at record
levels and newbuilds have increased capacity serving the Jones Act market at a
faster rate than demand and the decrease in capacity due to the required
phase-outs under the Oil Pollution Act of 1990 (OPA 90). Due to these market
shifts, our ITBs have recently incurred idle periods greater than, and charter
rates below, our expectations at the beginning of 2008. During the first half
of 2008, we also experienced modest decreased demand for the domestic coastwise
transportation of chemical products served by our chemical transporting
vessels, which we believe was primarily due to our customers working off
inventory levels due to the decline in economic activity. As a result, our cash
flows and liquidity have come under increasing pressure due to the current
difficult market conditions, which has substantially increased the likelihood that
the Partnership will not be able to remain in compliance with certain financial
covenants relating to leverage (debt to EBITDA) and fixed charge and interest
coverage under our Third Amended and Restated Credit Facility (Senior Credit
Facility), as early as the end of the third quarter of 2008 We were in
compliance with all of our financial covenants at the second quarter of 2008.

If
a breach occurs, we will be prohibited from making distributions on our common
units until we have cured such breach (although any unpaid distributions will
accrue). In addition, a breach of our loan covenants would give the lenders
under the Senior Credit Facility the right to refuse to make funds available
under the revolving credit facility and to demand immediate payment of our
loans under the Senior Credit Facility and cause cross defaults under our other
debt agreements. If all such outstanding indebtedness were declared to be
immediately due and payable, we would not have the financial resources to repay
immediately in full all outstanding borrowings under our various debt
agreements. As such, we would be required to either amend the Senior Credit
Facility or replace it with an alternate credit facility. In addition, the
lenders under the senior credit facility could prohibit us from paying interest
on the senior notes.

In
response to these issues, we have retained Greenhill & Co., LLC and
Jefferies & Company, Inc. to assist us in exploring strategic alternatives,
including either the possible sale of the business or the sale of new equity,
and other ways to increase liquidity and strengthen our financial resources. In
order to give us adequate time to pursue strategic alternatives, we have
entered into negotiations with our lenders to amend certain financial ratio
covenants under the Senior Credit Facility.

- 29 -

---



In
light of these liquidity pressures, we did not pay a distribution on our
subordinated units and general partner units in respect of the fourth quarter
of 2007 and first quarter of 2008, and will not pay a distribution on any of
our units in respect of the second quarter of 2008. Based on discussions to
date with our lenders regarding an amendment to the Senior Credit Facility, we
believe any amendment will prohibit the payment of distributions on any units
for at least a specified period of time.

Consistent
with generally accepted accounting principles, our condensed consolidated
financial statements included herein have been prepared on the basis that we
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Assuming
that our debt is not accelerated, we believe that we will have sufficient
liquidity to meet ongoing operations for the remainder of 2008. Our lenders
right to demand immediate payment of our outstanding indebtedness upon the
occurrence of a default under the Senior Credit Facility, coupled with a
substantial doubt about our ability to repay this indebtedness immediately and,
accordingly, in such circumstances to continue as a going concern, leads to the
need to successfully renegotiate our existing, or secure alternative, financing
arrangements. Although there can be no assurance, we believe we will be
successful in renegotiating the Senior Credit Facility.

Competitive Advantage

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.

Industry Capacity and Utilization

With
the 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
likely that some of these vessels will 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 may increase in the near term. This trend could
negatively impact our utilization rate for petroleum transporting vessels in
the future and, as a result, our levels of qualifying income for tax purposes.

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 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. The
announced or other newbuilding programs may make the repurposing of our ITBs
uneconomical or unattractive to charterers compared to a newly built vessel,
and may adversely impact our levels of qualifying income for tax purposes.

Future Growth

We
have entered into contracts to construct four additional ATB units, each of
which is specified to have a carrying capacity of approximately 156,000 barrels
at 98% of capacity. However, in June 2008 we exercised our option to cancel the
fourth ATB. We expect that the first two of these ATB units will be completed
in August 2008 and November 2008, respectively, and the third ATB unit will be
completed in August 2009. The tug for the first of these ATBs is currently
enroute to pick up the barge portion in Sturgeon Bay, Wisconsin. The
Partnership expects that the completed ATB will be placed in service during the
second half of August, 2008, at a total cost (excluding capitalized interest)
of approximately $66.6 million. The cost increase over the originally budgeted
amount of $65 million was principally due to contractually provided cost
increases related to increases in major components and change orders. The funds
to substantially complete these three ATBs have been placed in escrow. For a
discussion of our obligations under our construction contracts, please see the
section titled, Contractual Commitments and Contingencies below.

- 30 -

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We,
through our subsidiary USS Product Carriers LLC (Product Carriers), entered
into a contract for the construction of nine 49,000 deadweight tons (dwt)
double-hulled tankers. The builder is currently scheduled to deliver the first
tanker in the second quarter of 2009, the second tanker later in 2009, two
tankers in 2010, one tanker in 2011, one tanker in 2012, two tankers in 2013
and the last tanker in 2014. Product Carriers entered into a joint venture, USS
Products Investor LLC (the Joint Venture), to finance the construction of the
first five tankers with third party investors led by affiliates of The
Blackstone Group (the Joint Venture Investors). Our ability to take delivery
of these vessels from our Joint Venture will depend on our ability to finance
the purchase of these vessels upon their completion. If the vessels remain in
the Joint Venture, we will not receive the bulk of the benefits associated with
ownership of these vessels, our growth strategy and our OPA 90 compliance
strategy for replacement of our ITB fleet will be adversely affected, which
could have a material adverse effect on our business, results of operations and
financial condition, and it is likely that our interest in the Joint Venture
will be negatively impacted.

For
a discussion of our obligations under our construction contracts, please see
the section titled, Contractual Commitments and Contingencies below.

Revenue Generating Transactions

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.                     

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

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

|                            |  |                                                        |  |                                     |  |                                      |  |                                     
|--------------------------- |  | ------------------------------------------------------ |  | ----------------------------------- |  | ------------------------------------ |  | ------------------------------------
|                            |  | Time Charter                                           |  | Contract of
  Affreightment         |  | Consecutive
  Voyage
  Charter       |  | Spot Charter                        
|                            |  |                                                        |  |                                     |  |                                      |  |                                     
|Typical
  contract length   |  | One year or
  more                                     |  | One year or
  more                  |  | Multiple
  voyages                   |  | Single
  voyage                     
|Rate basis                  |  | Daily                                                  |  | Per ton                             |  | Per ton                              |  | Per ton/lump
  sum                  
|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
  long as vessel is
  available for |  | Customer
  does
  not payoperations |  | Customer
  pays if
  cargo not ready |  | Customer
  pays if
  cargo not ready

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

- 31 -

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For
the three months ended June 30, 2008 and 2007 we derived approximately 52% and
75%, respectively, of our revenue under time charters, consecutive voyage
charters and contracts of affreightment, and approximately 48% and 25%,
respectively, of our revenue from spot charters. For the six months ended June
30, 2008 and 2007 we derived approximately 60% and 80%, respectively, of our
revenue under time charters, consecutive voyage charters and contracts of
affreightment, and approximately 40% and 20%, respectively, of our revenue from
spot charters. We expect the trend of increasing revenues from spot voyages to
continue, as we expect our ITBs to be employed more often in the spot market in
the future.

The following
table sets forth the markets in which our ITBs were operating during the first
and second quarters of 2007 and 2008:

|                   |  |                |  |                |  |                   |  |                  
|------------------ |  | -------------- |  | -------------- |  | ----------------- |  | -----------------
|                   |  | Quarter Ending |  | Quarter Ending |  | Quarter Ending    |  | Quarter Ending   
|Vessel             |  | March 31, 2008 |  | March 31, 2007 |  | June 30, 2008     |  | June 30, 2007    
|                   |  |                |  |                |  |                   |  |                  
|Baltimore
  (1)    |  | Time Charter   |  | Time Charter   |  | Time Charter/Spot |  | Time Charter/Spot
|Groton (2)         |  | Time Charter   |  | Time Charter   |  | Spot              |  | Time Charter     
|Jacksonville
  (3) |  | Time Charter   |  | Spot           |  | Spot              |  | Spot             
|Mobile (4)         |  | Time Charter   |  | Time Charter   |  | Time Charter      |  | Time Charter     
|New York (5)       |  | COA            |  | Spot           |  | COA/Spot          |  | Spot             
|Philadelphia
  (6) |  | Spot           |  | COA            |  | Spot              |  | COA              
|Houston            |  | Time Charter   |  | Time Charter   |  | Time Charter      |  | Time Charter     
|Sea Venture        |  | COA/Spot       |  | COA/Spot       |  | COA/Spot          |  | COA/Spot         
|Freeport           |  | COA/Spot       |  | COA/Spot       |  | COA/Spot          |  | COA/Spot         
|Chemical
  Pioneer |  | COA/Spot       |  | COA/Spot       |  | COA/Spot          |  | COA/Spot         
|Charleston         |  | COA/Spot       |  | COA/Spot       |  | COA/Spot          |  | COA/Spot         

|    |                                                                                  
|--- | ---------------------------------------------------------------------------------
|(1) | ITB
Baltimoreentered spot market on 5/19/08 upon its first grain voyage.         
|    |                                                                                  
|(2) | ITB Grotonentered spot market on 4/28/08.                                        
|    |                                                                                  
|(3) | ITB
Jacksonvillere-entered the spot market on 4/7/08 upon its first grain
voyage.
|    |                                                                                  
|(4) | ITB Mobilecurrent time charter will transfer to the ITB New York on 7/4/08.      
|    |                                                                                  
|(5) | ITB New Yorkwill begin a time charter transferred from the ITB Mobile on 7/4/08. 
|    |                                                                                  
|(6) | ITB
Philadelphiaentered spot market on 12/14/07 upon its first grain voyage.     

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. The timing of the
recognition of voyage revenue is impacted by the type of products that we
carry. With respect to the transportation of refined petroleum, petrochemical
and commodity chemical products, under GAAP we generally recognize revenue
based upon the relative transit time in each period to the total estimated
transit time for each voyage. With respect to our grain voyages, we only
recognize revenue when the grain is delivered to its final destination.

- 32 -

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | 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, including, in the case of certain
grain voyages, the cost of readying the vessel to carry grain. These costs
can vary significantly depending on the voyage trade route. Depending on the
form of contract, either we or our customer is responsible for these
expenses. If we pay voyage expenses, they are included in our results of
operations when they are incurred. Typically, our freight rates are higher
when we pay voyage expenses. A substantial portion of certain cost increases
can be passed on to our customers. The timing of the recognition of voyage
expenses is impacted by the type of products that we carry. With respect to
the transportation of refined petroleum, petrochemical and commodity chemical
products, we generally recognize voyage expenses based upon the relative
transit time in each period to the total estimated transit time for each
voyage. With respect to our grain voyages, we only recognize voyage expenses
when the grain is delivered to its final destination. These expenses are
deferred and accrued as a liability on our balance sheet.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | · | 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:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | Vessels and equipment are recorded at cost, including
capitalized interest and transaction fees where appropriate, and depreciated
to estimated salvage value using the straight-line method as follows: ITBs
and the Sea Ventureto their mandatory retirement from transportation of
petroleum products as required by OPA 90, between 2012 and 2014; 10 years for
the Chemical Pioneer, the Charlestonand the Houston; and 30 years for the
ATB Freeportbased on their respective estimated useful lives.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | o | Office
  furniture, equipment and other are depreciated over the estimated useful life
  of three to ten years. Major renewals and betterments of assets are
  capitalized and depreciated over the remaining useful lives of the assets.
  Maintenance and repairs that do not improve or extend the useful lives of the
  assets are expensed as incurred. Leasehold improvements are capitalized and
  depreciated over the shorter of their useful life or the remaining term of
  the lease.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | o | To date, our
ITBs have been able to participate in the United States Coast Guard
Underwater Inspection In Lieu of Drydock (UWILD) Program, which allows the
ITBs to be drydocked once every five years, with a mid-period underwater
survey in lieu of a second drydock. Our chemical vessels must be drydocked
twice every five years. In addition, vessels may have to be drydocked in the
event of accidents or other unforeseen damage. We capitalize expenditures
incurred for drydocking and generally 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. We expect that our ITBs will be able to continue
participation in the UWILD program. If the Partnership is required to conduct
a second drydock in each five year period rather than rely on an underwater
survey, the ITBs will be out of service longer and drydock expenditures will
be higher than the time required for and the cost of conducting an underwater
survey. Because of the age of the ITBs, their continued participation in the
UWILD Program is now conditioned on their undergoing an enhanced survey
during the UWILD, resulting in the vessel being off-hire, and not earning
revenue, for an additional 12 days each time a survey is conducted; however,
under international maritime organization regulations, in order for it to
continue to trade internationally (including grain voyages), it will have to
undergo two drydockings in each five year period, rather than a drydocking
and a UWILD. Additionally, vessels may have to be drydocked in the event of
accidents or other unforeseen damage. The Partnerships recently constructed
ATB Freeportand all of the newbuild ATBs and product tankers qualify for the
UWILD Program.

- 33 -

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| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | o | The ATBs are
  subject to the same drydock requirements as the ITBs and currently qualify
  for participation in the UWILD program. We will capitalize expenditures
  incurred for drydocking the ATBs and amortize these expenditures over 60
  months.

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | General and administrative expenses. General
  and administrative expenses consist of employment costs for shore side staff
  and cost of facilities, as well as legal, audit and other administrative
  costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | 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; however, under
international maritime organization regulations, in order for it to continue
to trade internationally (including grain voyages), it will have to undergo
two drydockings in each five year period, rather than a drydocking and a
UWILD. The ATBs and petroleum tankers being constructed by the Joint Venture
also qualify for the UWILD program. Our parcel tankers and the Houstonmust
be drydocked twice every five years. Drydocking days also include unscheduled
instances where vessels may have to be drydocked in the event of accidents or
other unforeseen damage.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | Net utilization. Net utilization is a
  primary measure of operating performance in our business. Net utilization is
  a percentage equal to the total number of days worked by a vessel or group of
  vessels during a defined period, divided by total vessel days for that vessel
  or group of vessels. Net utilization is adversely impacted by drydocking,
  scheduled and unscheduled maintenance and idle time not paid for by the
  customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | · | Time charter equivalent. Time charter
  equivalent, another key measure of our operating performance, is equal to the
  net voyage revenue (voyage revenue less voyage expenses) earned by a vessel
  during a defined period, divided by the total number of actual days worked by
  that vessel during that period, adjusted for any days related to grain voyages
  for which revenue has not yet been recognized. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

- 34 -

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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 EndedJune 30, |        | For the Six Months EndedJune 30, |  
|                                                                |  |                                    |        |                                  |  
|                                                                |  | 2008                               |        | 2007                             |   | 2008   |   | 2007 |        
|                                                                |  |                                    |        |                                  |   |        |   |      |        
|                                                                |  |                                    |        |                                  |   |        |   |      |        
|Voyage revenue                                                  |  | $                                  | 49,819 |                                  | $ | 45,621 |   | $    | 101,323 |   | $ | 87,703 |  
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Vessel operating expenses                                       |  |                                    | 16,384 |                                  |   | 17,407 |   |      | 33,405  |   |   | 32,325 |  
|% of voyage revenue                                             |  |                                    | 32.9   | %                                |   | 38.2   | % |      | 33.0    | % |   | 36.9   | %
|Voyage expenses                                                 |  |                                    | 17,331 |                                  |   | 8,712  |   |      | 31,010  |   |   | 16,149 |  
|% of voyage revenue                                             |  |                                    | 34.8   | %                                |   | 19.1   | % |      | 30.6    | % |   | 18.4   | %
|General and administrative expenses                             |  |                                    | 4,011  |                                  |   | 4,241  |   |      | 8,005   |   |   | 8,006  |  
|% of voyage revenue                                             |  |                                    | 8.1    | %                                |   | 9.3    | % |      | 7.9     | % |   | 9.1    | %
|Depreciation and amortization                                   |  |                                    | 10,445 |                                  |   | 9,054  |   |      | 20,949  |   |   | 18,102 |  
|Other expenses (income)                                         |  |                                    | 45     |                                  |   |       |   |      | 5,832   |   |   | (3,486 | )
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Total operating expenses, net                                   |  |                                    | 48,216 |                                  |   | 39,414 |   |      | 99,201  |   |   | 71,096 |  
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Operating income                                                |  |                                    | 1,603  |                                  |   | 6,207  |   |      | 2,122   |   |   | 16,607 |  
|% of voyage revenue                                             |  |                                    | 3.2    | %                                |   | 13.6   | % |      | 2.1     | % |   | 18.9   | %
|Interest expense                                                |  |                                    | 6,879  |                                  |   | 6,655  |   |      | 14,770  |   |   | 13,572 |  
|Interest income                                                 |  |                                    | (655   | )                                |   | (2,572 | ) |      | (1,695  | ) |   | (5,247 | )
|Net gains on derivative financial instruments                   |  |                                    | (586   | )                                |   | (904   | ) |      | (1,028  | ) |   | (904   | )
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Loss (income) before income taxes and noncontrolling
  interest |  |                                    | (4,035 | )                                |   | 3,028  |   |      | (9,925  | ) |   | 9,186  |  
|(Benefit) provision for income taxes                            |  |                                    | (1,514 | )                                |   | 202    |   |      | (1,222  | ) |   | 622    |  
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|(Loss) income before noncontrolling interest                    |  |                                    | (2,521 | )                                |   | 2,826  |   |      | (8,703  | ) |   | 8,564  |  
|Noncontrolling interest in Joint Venture (income) loss          |  |                                    | (162   | )                                |   | (418   | ) |      | 242     |   |   | (407   | )
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Net (loss) income                                               |  | $                                  | (2,683 | )                                | $ | 2,408  |   | $    | (8,461  | ) | $ | 8,157  |  
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Distributions declared per common unit in respect of the period |  | $                                  |       |                                  | $ | 0.45   |   | $    | 0.45    |   | $ | 0.90   |  
|                                                                |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Operating Data                                                  |  |                                    |        |                                  |   |        |   |      |         |   |   |        |  
|Number of vessels                                               |  |                                    | 11     |                                  |   | 10     |   |      | 11      |   |   | 10     |  
|Total vessel days                                               |  |                                    | 1,001  |                                  |   | 910    |   |      | 2,002   |   |   | 1,810  |  
|Days worked                                                     |  |                                    | 937    |                                  |   | 896    |   |      | 1,922   |   |   | 1,789  |  
|Drydocking days                                                 |  |                                    |       |                                  |   | 6      |   |      |        |   |   | 6      |  
|Net utilization                                                 |  |                                    | 94     | %                                |   | 98     | % |      | 96      | % |   | 99     | %
|Average daily time charter equivalent rate                      |  | $                                  | 36,310 |                                  | $ | 41,193 |   | $    | 37,424  |   | $ | 39,997 |  

In order to
address reduced demand for our ITBs in the spot market for transportation of
petroleum products, we are currently employing three of our ITBs in the foreign
transportation of grain for humanitarian organizations. Unlike our petroleum
voyages, where we generally recognize revenue and expenses based upon the relative
transit time in each period to the total estimated transit time for each
voyage, for our grain voyages we recognize revenue and voyage expenses when the
grain has been delivered to its final destination, which may fall into the next
reporting period. However, our grain voyage expenses are deferred and accrued
as a liability on our balance sheet during the voyage. As a result, a
comparison of our results with prior quarters and comparable periods in the
prior year may be less meaningful.

- 35 -

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Three Months Ended June 30, 2008 Compared to
Three Months Ended June 30, 2007

Voyage Revenue. Voyage revenue was $49.8
million for the three months ended June 30, 2008, an increase of $4.2 million,
or 9%, from $45.6 million for the three months ended June 30, 2007. The
increase in voyage revenue was primarily the result of the addition of the ATB
Freeport, which was placed in service in July 2007, as well as higher spot
market rates compared to time charter rates given that spot market rates include
an amount to cover voyage expenses whereas time charter rates do not include
this amount because the customer is responsible for payment of these expenses.
These increases in revenues were partially offset by more offhire days due to
reduced demand for our ITBs, as well as the impact related to the difference in
revenue recognition policies for grain voyages compared to our other voyages.
Revenues are affected by several factors, such as the mix of charter types, the
charter rates attainable in the market, fleet utilization and other items such
as fuel surcharges. Certain charters, including contracts of affreightment and
consecutive voyage charters, generally provide for fuel escalation charges, but
do not fully protect us when the price of fuel increases. These charges
generally increase revenue, but only serve to partially offset the increase in
fuel expenses. Revenue for the three months ended June 30, 2008 included $4.4
million of fuel surcharges, compared to $2.6 million for the three months ended
June 30, 2007.

For
the three months ended June 30, 2008, revenues from our chemical fleet were
$20.1 million, an increase of $5.4 million over the three months ended June 30,
2007. The ATB Freeportcontributed $4.5 million of this increase; the remainder
of this increase was due to increased charter rates and fuel surcharges.
Revenue from the remainder of the Partnerships vessels, which consist of the
six ITBs and the product tanker Houston, were $29.8 million for the three
months ended June 30, 2008, a decrease of $1.1 million from the comparable
period in 2007. The decrease in revenue is largely due to the deferral of
recognition of revenue of approximately $5.5 million attributable to two grain
voyages that commenced in the second quarter of 2008 that will be recognized in
the third quarter of 2008 upon delivery of the grain to its final destination,
as well as increased offhire days due to reduced demand in the spot market for
transportation of petroleum products and required repairs to the ITB New York.
The decrease in revenues from the Partnerships ITB fleet was partially offset
by the fact that the Partnership obtained higher rates than it would have
received if the vessels had been operating on time charters, as the Partnership
was responsible for the payment of voyage expenses.

Vessel Operating Expenses. Vessel
operating expenses were $16.4 million for the three months ended June 30, 2008,
a decrease of $1.0 million, or 6%,  compared to $17.4 million for the three
months ended June 30, 2007. We are responsible for vessel operating expenses
regardless of the type of charter under which we are operating. The decrease is
primarily due to a reduction in expenditures, for supplies, repairs,
maintenance, safety and training, of $2.2 million. This decrease is partially
offset by the addition of the ATB Freeport, which increased vessel operating
expenses by $1.1 million, as well as a $0.1 million net increase in all other
vessel operating expenses.

Voyage Expenses. Voyage expenses were
$17.3 million for the three months ended June 30, 2008, an increase of $8.6
million, or 99%,  compared to $8.7 million for the three months ended June
30, 2007. 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 expenses can vary significantly
depending on the voyage trade route. Depending on the form of contract, either
we or our customer are responsible for these expenses. Typically, freight rates
are higher when we pay voyage expenses.

During
the three months ended June 30, 2008, voyage expenses increased by $8.6 million
over the prior year due to the addition of the ATB Freeport, which contributed
$1.4 million in voyage expenses, coupled with increases in fuel, port,
commission and other costs on the remaining fleet of approximately $7.2
million. Approximately $3.8 million of the $7.2 million increase related to
increased fuel costs for these vessels, which were only partially offset by the
$0.8 million of increased fuel surcharge revenue, and approximately $2.8
million of the increase related to the costs of readying our ITBs to transport
grain. The significant increase in voyage expenses is due to the expiration of
time charters for two of our ITBs in 2008, resulting in the Partnership
incurring voyage expenses that the customer paid directly under time charters.
The impact of these additional voyage expenses increased revenues, as rates are
generally higher to compensate for the voyage expenses previously incurred by
the customer, rather than us, under a time charter. Because we do not recognize
voyage expenses related to our grain voyages until the grain is delivered to
its final destination, voyage expenses for the three months ended June 30, 2008
do not include approximately $2.3 million of expenses deferred in connection
with grain voyages commenced in the second quarter of 2008 that were completed
in July 2008.

- 36 -

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General and Administrative Expenses.
General and administrative expenses were $4.0 million for the three months
ended June 30, 2008 compared to $4.2 million for the three months ended June
30, 2007, a decrease of $0.2 million or 5%. A decrease in personnel expenses of
$0.6 million was partially offset by an increase in professional fees,
consisting of legal, accounting and consulting fees primarily related to our
review of strategic alternatives, of $0.4 million.

Depreciation
and Amortization. Depreciation and amortization was
$10.4 million for the three months ended June 30, 2008, an increase of $1.4
million, or 15%, compared to $9.1 million for the three months ended June 30,
2007. The increase is primarily due to additional amortization of drydock
expenditures of $1.0 million, principally resulting from drydocks completed in
2007, and $0.8 million attributable to the addition of the ATB Freeport. These
increases to depreciation and amortization expense were offset by a decrease of
$0.4 million, resulting from an adjustment to the values assigned to the vessels
in the original purchase of the ITBs due to net payments made to us under the
Hess Support Agreement, which under GAAP were considered an adjustment to the
original purchase price.

Other
expense (income). Other expense in the three months
ended June 30, 2008 of $45 reflects a loss related to the sale of surplus
equipment. There were no other expense or income items in the three months
ended June 30, 2007.

Interest Expense. Interest expense was $6.9
million for the three months ended June 30, 2008, an increase of $0.2 million,
or 3%, compared to $6.7 million for the three months ended June 30, 2007. The
increase is primarily attributable to a higher average outstanding debt balance
during the 2008 quarter partially offset by a decrease in interest rates. The
average effective interest rate for the quarter ended June 30, 2008 was 9.2%
compared to 10.0% for the quarter ended June 30, 2007.

Interest Income. Interest income,
consisting of interest earned on our invested balances, was $0.7 million for
the three months ended June 30, 2008, a decrease of $1.9 million, or 75%,
compared to $2.6 million for the three months ended June 30, 2007. The decrease
is primarily attributable to a decrease in invested balances in the funds held
in escrow accounts to fund the construction of our ATBs and to fund our
remaining commitment to the Joint Venture. As these funds are used, interest
income will continue to decrease.

Net Gains on Derivative Financial Instruments. The Joint Venture recorded a
gain of $0.6 million in the three months ended June 30, 2008 in connection with
the interest rate cap it had entered into in April 2007. For information
on this interest rate cap, see Item 3. Quantitative and Qualitative
Disclosures about Market Risk. During the quarter ended June 30, 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, resulting in a gain of $0.2 million.
Additionally, the Joint Venture recorded a gain of $0.7 million in connection
with its interest rate cap.

Provision for Income Taxes. The benefit
for income taxes was $1.5 million for the three months ended June 30, 2008,
compared to a provision for income taxes of $0.2 million for the three months
ended June 30, 2007. The benefit recorded in the second quarter of 2008 is
primarily due to a benefit of $5.7 million recorded upon the transfer of the
ownership interests in the limited liability companies that own the ITB Groton, ITB New York, ITB Jacksonville, and ITB Baltimoreto the corporate entity USCS Chemical Pioneer Inc.
In addition, a
provision of $2.8 million was recorded to provide a valuation allowance against
deferred tax assets created during the period as a result of the transfer of
these subsidiaries. Further $0.1 million of tax provision related to
unrecognized tax benefits was recorded during the second quarter of 2008.
Offsetting the benefit for income taxes was a tax provision of $0.8 million
related to the current period operating results at the various corporate
subsidiaries, and a deferred tax provision of $0.5 million related to the
revision of the deferred tax assets for USCS
Sea Venture LLC. For the comparable period in 2007, only the
Chemical Pioneer was owned by a corporate subsidiary subject to federal, state
and local income taxes.

Noncontrolling Interest in Joint Venture.
For the three months ended June 30, 2008, we recorded noncontrolling interest
in Joint Venture income of $0.2 million compared to $0.4 million for the three
months ended June 30, 2007, relating to the 60% of the Joint Venture owned by
third parties.

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Net Loss. The net loss for the three
months ended June 30, 2008 was $2.7 million, a decrease of $5.1 million,
compared to net income of $2.4 million for the three months ended June 30,
2007. The decrease in operating income of $4.6 million, a decrease in net interest
income of $2.1 million and reduced gains of $0.3 million on financial
instrument derivatives drove this decrease. This decrease was offset by $1.7
million favorable tax variance from the three months ended June 30, 2007.
Additionally there was a $0.3 million favorable variance on the non controlling
interest in the Joint Venture.

Six Months Ended
June 30, 2008 Compared to Six Months Ended June 30, 2007

The
six month period ended June 30, 2008 is one day greater than the six month
period ended June 30, 2007.

Voyage Revenue. Voyage revenue was $101.3
million for the six months ended June 30, 2008, an increase of $13.6 million,
or 16%, from $87.7 million for the six months ended June 30, 2007. The increase
in voyage revenue was primarily the result of the addition of the ATB Freeport, which was placed in service
in July 2007, as well as higher spot market rates compared to time charter
rates given that spot market rates include an amount to cover voyage expenses
whereas time charter rates do not include this amount because the customer is
responsible for payment of these expenses. These increases in revenues were
partially offset by more offhire days due to reduced demand for our ITBs as
well as the impact related to the difference in revenue recognition policies
for grain voyages compared to our other voyages. Revenues are affected by
several factors, such as the mix of charter types; the charter rates attainable
in the market; fleet utilization and other items such as fuel surcharges. Certain
charters, including contracts of affreightment and consecutive voyage charters
generally provide for fuel escalation charges that are designed to protect us
against increases in fuel prices; however, these surcharges do not protect us
fully when the price of fuel increases. These charges generally increase
revenue, but only serve to offset the increase in fuel expenses. Revenue for
the six months ended June 30, 2008 included $9.5 million of fuel surcharges,
compared to $4.3 million for the six months ended June 30, 2007.

For
the six months ended June 30, 2008, revenues from our chemical fleet were $39.5
million, an increase of $10.6 million over the six months ended June 30, 2007.
The ATB Freeportcontributed $8.7
million of this increase; the remainder of this increase was due to increased
charter rates and fuel surcharges. Revenue related to the Partnerships ITB
fleet and the product tanker Houstonwere $61.8 million for the six months
ended June 30, 2008, an increase of approximately $3.0 million from the
comparable period in 2007. The increase in revenue for the ITB fleet revenue
for the first half of 2008 was due primarily to approximately $3.0 million of
revenue from a grain voyage the recognition of which was deferred until the grain
reached its final destination in February 2008. Furthermore, the Partnership
experienced increased revenues from obtaining higher rates than it would have
received if the vessels had been operating on time charters, as the Partnership
was responsible for the payment of voyage expenses. These increases were
partially offset by an increase in the number of offhire days for the ITBs in
the first half of 2008 compared to the first half of 2007 and the deferral of
recognition of $5.5 million of revenue attributable to two grain voyages that
commenced in the second quarter of 2008 that will be recognized in the third
quarter of 2008, when the grain reached its final destination. At June 30,
2008, total deferred costs for these grain voyages were approximately $2.3
million. Revenue related to the Partnerships chemical fleet (other than the ATB Freeportincreased by $1.9 million
from the comparable period in 2007 due to increased charter rates.

Vessel Operating Expenses. Vessel
operating expenses were $33.4 million for the six months ended June 30, 2008,
an increase of $1.1 million, or 3%, as compared to $32.3 million for the six
months ended June 30, 2007. We are responsible for vessel operating expenses
regardless of the type of charter under which we are operating. The increase is
primarily due to the addition of the ATB
Freeport, which increased vessel operating expenses by $2.4 million.
Additionally, crew wages and benefits increased by $.9 million and all other
vessel operating expenses increased by $0.2 million. The increase in crew wages
and benefits resulted from new collective bargaining agreements with the unions
that cover the crew members and officers of our vessels effective in the second
and third quarters of 2007, respectively. These increases were offset by a $2.4
million decrease in expenditures for supplies, repairs and maintenance and a
$0.2 million net increase in all other vessel operating expenses.

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Voyage Expenses. Voyage expenses increased
by $14.9 million, or 92%, over the prior year due to the addition of the ATB Freeport, which contributed $3.0
million in additional voyage expenses, along with increases in fuel, port, and
commission costs on the remaining fleet of approximately $7.3 million.
Approximately $6.2 million of this $7.3 million increase related to increased
fuel costs, which were partially offset by the $3.2 million of increased fuel
surcharge revenue. In addition, grain voyage related expenses, including tank
cleaning, increased voyage expenses by $4.6 million for the ITB Philadelphia, ITB Jacksonville,and ITB Baltimore in the first half of 2008.
The significant increase in voyage expenses is due to the expiration of time
charters for two of our ITBs in 2008, resulting in the Partnership incurring
voyage expenses that the customer paid directly under time charters. The impact
of these additional voyage expenses increased revenues, as rates are higher to
compensate for these voyage expenses that were previously incurred by the
customer, rather than us, under a time charter. Because we do not recognize
voyage expenses related to our grain voyages until the grain is delivered to
its final destination, voyage expenses for the six months ended June 30, 2008
do not include approximately $2.3 million of expenses deferred in connection
with grain voyages commenced in the second quarter of 2008 that were completed
in July 2008.

General and Administrative Expenses.
General and administrative expenses were $8.0 million for the six month periods
ended June 30, 2008 and June 30, 2007. An increase in professional fees,
consisting of legal, accounting and consulting fees, and directors fees of $1.0
million were offset by a net decrease in personnel expenses of $1.0 million.

Depreciation and Amortization. Depreciation
and amortization was $20.9 million for the six months ended June 30, 2008, an
increase of $2.8 million, or 16%, compared to $18.1 million for the six months
ended June 30, 2007. The increase is primarily due to additional amortization
of drydock expenditures of $2.0 million, principally resulting from drydocks
completed in 2007, and $1.6 million attributable to the addition of the ATB Freeport. These increases to
depreciation and amortization expense were offset by a decrease of $0.7 million,
resulting from an adjustment to the values assigned to the vessels in the
original purchase of the ITBs due to net payments made to us under the Hess
Support Agreement, which under GAAP were considered an adjustment to the
original purchase price.

Other expense (income). Other expense in
the six months ended June 30, 2008 reflects an impairment loss of $5.7 million
and a loss of $0.1 million related to the sale of surplus equipment. We
previously entered into contracts to construct four additional ATB units
similar to the ATB Freeport, each
of which is specified to have a carrying capacity of approximately 156,000
barrels at 98% of capacity. The Partnership exercised its cancellation option
for the fourth ATB unit. Accordingly, we have assessed the fair value of the
construction in progress of the fourth ATB unit at zero, resulting in a
non-cash impairment charge of $5.7 million which includes $3.8 million
previously paid for construction of the barge portion of this ATB unit, $1.4
million for deposits on certain owner furnished equipment, and $0.5 million of
capitalized interest costs. For the six months ended June 30, 2007, a $3.5
million contract settlement was paid to us, resulting in other income for the
period.

Interest Expense. Interest expense was
$14.8 million for the six months ended June 30, 2008, an increase of $1.2
million, or 9%, compared to $13.6 million for the six months ended June 30,
2007. The increase is primarily attributable to a higher average outstanding
debt balance during the 2008 quarter partially offset by a decrease in interest
rates. The average effective interest rate for the six months ended June 30,
2008 was 9.5% compared to 10.0% for the same period in 2007.

Interest Income. Interest income,
consisting of interest earned on our invested balances, was $1.7 million for
the six months ended June 30, 2008, a decrease of $3.6 million, or 68%,
compared to $5.2 million for the six months ended June 30, 2007. The decrease
is primarily attributable to a decrease in invested balances in the funds held
in escrow accounts to fund the construction of our ATBs and to fund our
remaining commitment to the Joint Venture. As these funds are used, interest
income will continue to decrease.

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Net Gains on Derivative Financial Instruments. We recorded a gain and received
proceeds of $0.7 million in connection with the sale of foreign currency
forward contracts that we entered into for the purchase of owner-furnished
items relative to our newbuild ATB series. Due to the acceleration or deferral
of certain payments scheduled for owner-furnished items relative to the ATBs
being constructed, a portion of the foreign currency contracts were ineffective
as a hedge. Due to this hedge ineffectiveness, a gain on derivative financial
instruments was recognized in our Consolidated Statement of Operations. For
information on our foreign currency forward contracts, see Item 3.
Quantitative and Qualitative Disclosures about Market Risk. Additionally, the Joint Venture
recorded a gain of $0.3 million in the six months ended June 30, 2008 in
connection with the interest rate cap it had entered into in April 2007. For
information on this interest rate cap, see Item 3. Quantitative and
Qualitative Disclosures about Market Risk. During the second quarter ended
June 30, 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, resulting in a gain of $0.2 million.
Additionally, the Joint Venture recorded a gain of $0.7 million in connection
with its interest rate cap.

Provision for Income Taxes. The benefit
for income taxes was $1.2 million for the six months ended June 30, 2008. The
benefit recorded in the first half of 2008 is primarily due to a benefit of
$5.0 million recorded upon the transfer of the ownership interest in the
 limited liability companies that own  the ITB
Groton, ITB New York, ITB Jacksonville,and ITB Baltimoreto the corporate entity USCS Chemical Pioneer Inc
and the election to treat the ITB Philadelphia LLC and USCS Sea Venture LLC as corporations for tax purposes.
Additionally, a provision of $3.7 million was recorded to provide a valuation
allowance against deferred tax assets created during the period as a result of
these transfers and tax elections and net operating losses generated in earlier
periods. A provision of $0.2 million for unrecognized tax benefits was also
recorded during the second quarter 2008. Offsetting these items were losses at
the various corporate subsidiaries generating a tax benefit of $0.1 million.
For the comparable period in 2007, only the Chemical Pioneerwas owned by a
corporate subsidiary subject to federal, state and local income taxes.

Noncontrolling Interest in Joint Venture.
For the six months ended June 30, 2008, we recorded noncontrolling interest in
Joint Venture losses of $0.2 million compared to $0.4 million in Joint Venture
income for the six months ended June 30, 2007, relating to the 60% of the Joint
Venture owned by third parties.

Net Loss. The net loss for the six months
ended June 30, 2008 was $8.5 million, a decrease of $16.6 million, compared to
net income of $8.2 million for the six months ended June 30, 2007. The decrease
in operating income of $14.5 million (which includes a $5.7 million non-cash
impairment charge), and the decrease in net interest income of $4.8 million, were
the primary reasons for the decrease. This decrease was offset primarily by a
$1.8 million favorable variance on the income tax benefit from the six months
ended June 30, 2007. Additionally, there was a $0.7 million favorable variance
in the noncontrolling interest in the Joint Venture and an increase of $0.1
million from the gains on derivative financial instruments.

Liquidity and Capital Resources

Operating Cash Flows

Net
cash provided by operating activities was $13.4 million and $19.2 million for
the six months ended June 30, 2008 and 2007, respectively.

The
decrease in operating cash flows of $5.9 million in the first six months of
2008 compared to the first six months of 2007 is the result of the decrease in
net income of $16.6 million. This decrease in net income was offset by non-cash
items of $7.0 million, a reduction in capitalized drydock cost of $3.1 million
and an increase in net operating assets of $0.6 million.

Although
no vessels underwent drydockings in the six months ended June 30, 2008 or June
30, 2007, there were expenditures for drydockings related to accrued expenses
for drydockings that took place in previous periods. Three vessels are
scheduled for drydocking in 2008, and two ITBs are scheduled for UWILD surveys.
As a result, we expect operating cash flows to be negatively impacted in 2008
as compared to 2007, due to increased drydocking expenditures and reduced
revenues due to increased days off-hire as a result of such drydocks and UWILD
surveys.

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The
change in non-cash items of $7.0 million in the six months ended June 30, 2008
compared to the six months ended June 30, 2007 was due primarily to the $5.7
million write-off of the capitalized costs incurred as of June 30, 2008 related
the Partnerships exercised option to cancel the construction of the fourth ATB
in our current ATB newbuild series, an increase in depreciation and
amortization of $2.9 million, an increase in costs for stock issued to
directors of $0.1 million, and a loss on the sale of surplus equipment of $0.1
million. These items were partially offset by a decrease in our deferred tax
liabilities of $1.3 million, a decrease in the non-controlling interest in
Joint Venture (income) loss of $0.6 million, a decrease in the provision for
accounts receivable of $0.3 million and a decrease in net gains on derivative
financial instruments of $0.1 million.

Increased
working capital cash requirements of $0.6 million are due to overall higher net
operating assets primarily affected by the addition of the ATB Freeport, which drove receivables and
other current assets higher compared to June 30, 2007, and the employment of
five of our ITBs in the spot market in 2008. Participation in the spot market
requires us to carry higher amounts of working capital, as under spot charters
fuel costs are our responsibility, and not realized economically until payment
is made to us by the customer. Additionally, payment dates are generally at the
completion of a voyage, compared to time charters, where payment is generally due
at the beginning of a fixed period of time, such as a month. In addition, grain
voyages, where we are paid following delivery of the grain to its final
destination, tend to be substantially longer than refined petroleum product
voyages. As we add two additional vessels in 2008 and our ITBs participate more
in the spot market, we expect our working capital requirements to increase.

Investing Cash Flows

Net
cash used in investing activities totaled $77.4 million for the six months
ended June 30, 2008, an increase of $41.0 million compared to net cash used of
$36.4 million for the six months ended June 30, 2007. For the six months ended
June 30, 2008, we made $48.3 million of payments toward the construction of the
ATBs and the Joint Venture made $105.9 million of payments toward the
construction of the product tankers. Of the $154.2 million spent for the
construction of ATBs and tankers, $75.8 million was funded from our restricted
cash accounts; the remainder, all of which was for the tankers being
constructed by the Joint Venture, was funded by equity contributions from the
other Joint Venture Investors and borrowings under the Joint Ventures
revolving credit facility. Additionally, in the six months ended June 30, 2008,
we received $0.7 million of cash related to the cash flow hedges that were
terminated given that the related underlying contract payments were canceled,
and received $0.3 million related to the sale of some surplus equipment. For
the six months ended June 30, 2007, we made $49.8 million of payments toward
the construction of the ATBs and the Joint Venture made $10.7 million of
payments toward the construction of the product tankers. Of the $60.5 million
spent for the construction of ATBs and tankers, $26.3 million was funded from our
restricted cash accounts; the remainder, all of which was for the tankers being
constructed by the Joint Venture, was funded by equity contributions from the
other Joint Venture Investors and borrowings under the Joint Ventures
revolving credit facility. Additionally, in the six months ended June 30, 2007,
the Joint Venture purchased a nine year interest rate cap with a notional
amount of $100.0 million effective April 1, 2007 for $1.9 million, including
transaction fees.

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 was 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 was less than the support rate set forth in the support
agreement, Hess paid the difference between the two rates to us. 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. If Hess had been fully reimbursed for all payments
made under the support agreement, we would have been obligated to 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 six months ended June 30,
2007.

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Financing Cash Flows

For
the six months ended June 30, 2008, net cash provided by financing activity was
$80.6 million. The Joint Venture received a total of $85.3 million from the
Joint Venture Investors, of which $32.0 million was equity contributions, and
$53.3 million was pursuant the Joint Ventures credit facility. Amounts
received from the Joint Venture Investors will increase substantially as the
Joint Venture continues to construct the product tankers, but are limited to
total equity contributions of $105.0 million and total debt of $325.0 million.
Due to the recent acceleration of the construction of the product tankers, it
is possible that these limits may be reached prior to completion of all five
vessels, as having multiple vessels under construction in the Joint Venture
simultaneously on an accelerated basis will increase the Joint Ventures
capital requirements. Additionally, in the six months ended June 30, 2008 we
borrowed $7.0 million under our credit facility, made scheduled debt payments
of $1.6 million in the six months ended June 30, 2008, and distributed $10.2
million to our holders of common units (but not our subordinated unit holders
or our general partner) in respect to the first quarter of 2008 and the fourth
quarter of 2007. Distributions to partners will decrease in 2008 as compared to
2007 as we do not expect to make distributions to any of our unitholders in the
second half of 2008. Distributions to our common and subordinated unitholders
and our general partner in the second half of 2007 totaled $16.7 million.

Net
cash provided by financing activities was $16.9 million for the six months
ended June 30, 2007. We borrowed $25.0 million under our credit facility. Our
Joint Venture received a total of $10.0 million from the Joint Venture
Investors, of which $4.5 million was equity contributions, and $5.5 million was
pursuant to the Joint Ventures credit facility. We also made scheduled debt
payments of $1.4 million in the period and distributed $16.7 million to our
partners (including holders of our subordinated units) in respect to the first
quarter of 2007 and the fourth quarter of 2006.

Payments of
Distributions

In
July 2008, the Board of Directors of the general partner determined not to
declare a distribution in respect of the second quarter of 2008 on any of its
outstanding common units, subordinated units and general partner units.

On
May 12, 2008, the Board of Directors of our general partner declared our
regular cash distribution for the first quarter of 2008 of $0.45 per common
unit. The distribution was paid on all common units on May 21, 2008 to all
common unitholders of record on May 16, 2008. The aggregate amount of the
distribution was $5.1 million.

The
Board of Directors also declared a quarterly distribution to unitholders of
$0.45 per common unit in respect to the quarter ended December 31, 2007 to
common unitholders of record on February 12, 2008. The distribution was paid to
all common unitholders on February 15, 2008. The aggregate amount of the
distribution was $5.1 million.

The
Board of Directors did not declare a dividend on our subordinated units and
general partner units in May 2008 or February 2008.

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 UWILD Program, which allows our ITBs to be drydocked once
every five years, with a mid-period underwater survey in lieu of a drydock. 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 14 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. Because of the age of the ITBs,
their continued participation in the UWILD Program is now conditioned on their
undergoing an enhanced survey during the UWILD at a cost of $0.5 million,
resulting in the vessel being off-hire, and not earning revenue, for an
additional 12 days each time a survey is conducted; however, under maritime
international maritime organization regulations, in order for an ITB to trade
internationally (including grain voyages), it will have to undergo two
drydockings in each five year period, rather than a drydocking and a UWILD.
Additionally, vessels may have to be drydocked in the event of accidents or
other unforeseen damage. Periodically, we 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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Three
vessels employed in our chemical business are scheduled for drydocking in the
fourth quarter. As a result, we expect our results of operations and operating
cash flows to be negatively impacted in 2008 as compared to 2007, due to
increased drydocking expenditures and reduced revenues due to increased days
off-hire as a result of such drydocks and UWILD surveys.

The
ITB Baltimorecompleted its
regularly scheduled drydocking in August 2007, at a cost of $5.8 million,
excluding damage repair costs. 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 ITB Philadelphiacompleted
its drydock in December 2007 at a cost of $5.6 million. For future drydockings,
we estimate that drydocking the ITBs will cost approximately $6.0 million
per vessel, the parcel tanker and Houstondrydocks will cost approximately $2.6
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 Houstonwill 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 international chartering opportunities that would preclude our
continued participation in the UWILD Program, we estimate that the required
second drydock will require our ITBs to be out of service for approximately
14-20 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 are $20.9 million in 2008, which is unchanged from
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.

Liquidity Needs

During
the first half of 2008, all but one of the Partnerships ITBs began to operate
in the spot market for the transportation of petroleum products, which has
increased the volatility of our revenues and working capital requirements, and
decreased the predictability of our cash flows. Beginning in late March 2008,
market conditions in the spot market deteriorated substantially, due to overall
declining economic activity and decreased demand for the domestic coastwise
transportation of petroleum products. Additionally, refinery utilization has
declined considerably, fuel prices for operating our vessels are at record
levels and newbuilds have increased capacity serving the Jones Act market at a
faster rate than demand, and the decrease in capacity due to the required phase-outs
under OPA 90. Due to these market shifts, our ITBs have recently incurred idle
periods greater than, and charter rates below, our expectations at the
beginning of 2008. During the first half of 2008, we also experienced modest
decreased demand for the domestic coastwise transportation of chemical products
served by our chemical transporting vessels, which we believe was primarily due
to our customers working off inventory levels due to the decline in economic
activity. As a result, our cash flows and liquidity have come under increasing
pressure due to the current difficult market conditions, which has
substantially increased the likelihood that we will not be able to remain in
compliance with certain financial covenants relating to leverage (debt to EBITDA)
and fixed charge and interest coverage under our Senior Credit Facility as
early as the end of the third quarter of 2008. We were in compliance with all
of our financial covenants as of the end of the second quarter of 2008, and
expect to generate sufficient cash that, together with borrowings under our
revolving credit facility, will allow us to make scheduled interest and
principal payments on our debt.

- 43 -

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Additionally,
participation in the spot market requires us to carry higher amounts of working
capital, as under spot charters fuel costs are our responsibility and are paid
at the time fuel is delivered, and not realized economically until payment is
made to USS by the customer. Additionally, payment generally occurs at the
completion of a voyage, compared to time charters, where payment is generally
made by the customer at the beginning of a fixed period of time, such as a
month. In addition, grain voyages, where we are paid following delivery of the
grain to its final destination, tend to be substantially longer in duration
than refined petroleum product voyages. As we add two additional vessels in
2008 and our ITBs participate more in the spot market, USS expects its working
capital requirements to increase. We have limited availability under our credit
facility to finance this increase in working capital requirements, and there
can be no assurance that our revolving credit lenders will make advances to us
when requested.

If
a covenant breach occurs, we will be prohibited from making distributions on
our common units until we have cured such breach (although any unpaid
distributions will accrue). In addition, a breach of our loan covenants would
give the lenders under the Senior Credit Facility the right to refuse to make funds
available under the revolving credit facility and to demand immediate payment
of our loans under the Senior Credit Facility and cause cross defaults under
our other debt agreements. If all such outstanding indebtedness were declared
to be immediately due and payable, we would not have the financial resources to
repay immediately in full all outstanding borrowings under our various debt
agreements. As such, we would be required to either amend the Senior Credit
Facility or replace it with an alternate credit facility. In addition, the
lenders under the senior credit facility could prohibit us from paying interest
on the senior notes.

In
response to these issues, we have retained Greenhill & Co. LLC and
Jefferies & Company, Inc. to assist us in exploring strategic alternatives,
including either the possible sale of the business or the sale of new equity,
and other ways to increase liquidity and strengthen our financial resources. In
order to give us adequate time to pursue strategic alternatives, we have
entered into negotiations with our lenders to amend certain financial ratio
covenants under the Senior Credit Facility.

In
light of these liquidity pressures, we did not pay a distribution on our
subordinated units and general partner units in respect of the fourth quarter
of 2007 and first quarter of 2008, and will not pay a distribution on any of
our units in respect of the second quarter of 2008. Based on discussions to
date with our lenders regarding an amendment to the Senior Credit Facility, we
believe any amendment will prohibit the payment of distributions on any units
for at least a specified period of time.

Consistent
with generally accepted accounting principles, the condensed consolidated
financial statements included herein have been prepared on the basis that we
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Assuming
that our debt is not accelerated, we believe that we will have sufficient
liquidity to meet ongoing operations for the remainder of 2008. Our lenders
right to demand immediate payment of our outstanding indebtedness upon the
occurrence of a default under the Senior Credit Facility, coupled with a substantial
doubt about our ability to repay this indebtedness immediately and,
accordingly, in such circumstances to continue as a going concern, leads to the
need to successfully renegotiate our existing, or secure alternative, financing
arrangements. Although there can be no assurance, we believe we will be successful
in renegotiating the Senior Credit Facility.

Please
see Risk FactorsRisks Inherent in Our Business in our Annual Report on Form
10-K dated December 31, 2007 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 Unitholder Matters and Issuer Purchases
of Equity Securities, in our Annual Report on Form 10-K dated December 31,
2007 for a detailed discussion of our policies and conditions regarding cash
distributions and the conversion of subordinated units into common units.

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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, although the Partnership had an option
 to cancel the last barge, which it exercised immediately prior to
its expiration on June 30, 2008. In 2006, we 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 included an option to construct and deliver an additional
tug which would have been combined with the fourth barge referenced above;
however, we let this option expire in connection with our cancellation of the
contract to construct the fourth barge. The total construction cost anticipated
for the first three new ATB units is approximately $67.0 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 June 30, 2008 relating to
the first three ATB units is $12.8 million. The tug for the first Eastern ATB
was delivered in July 2008, and is currently enroute to Wisconsin, where it
will be coupled with the first MMG barge. We expect this first new ATB to be
placed in service during the second half of August 2008, the second ATB unit to
be completed in November 2008, and the third ATB unit to be completed in August
2009. As of June 30, 2008, we made payments totaling $146.2 million related to
the first three newbuilds and had in escrow approximately $31.0 million, plus
$26.4 million of funds drawn from the escrow account in anticipation of
payments due in the third quarter of 2008. These escrowed amounts and funds
drawn represent our estimated cost to substantially complete construction of
the first three ATBs under construction at Manitowoc and Eastern. We estimate
the total cost (excluding capitalized interest) for this first ATB to be
approximately $66.6 million. The cost increase over the originally estimated
amount of $65.0 million was principally due to contractually provided cost
increases related to increases related to major components and change orders.

During
the quarter ended March 31, 2008, we determined that the fourth ATB unit
referenced above was impaired, and assessed the fair value of the construction
in progress of the this ATB at zero, which includes $3.8 million previously
paid for construction of the barge portion of this ATB unit, $1.4 million for
deposits on certain owner furnished equipment, and $0.5 million of capitalized
interest costs. In addition, we may be required to make additional payments for
certain owner furnished equipment.

We,
through our subsidiary 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 currently scheduled to deliver
the first tanker in the second quarter of 2009, the second tanker later in
2009, two tankers in 2010, one tanker in 2011, one tanker in 2012, two tankers
in 2013 and the last tanker in 2014. We currently expect the cost to construct
these nine tankers to aggregate approximately $1.2 billion (including an
estimate for price escalation based on projected increases in certain published
price indexes), exclusive of capitalized interest. In addition, NASSCO and
Product Carriers share in any cost savings achieved measured against the
original contract price based on the terms of the construction contract.

On
August 7, 2006, Product Carriers entered into the Joint Venture to finance the
construction of the first five tankers. We manage and own a 40% interest in the
Joint Venture and the Joint venture Investors 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 $51.5 million has already
been made and the remainder is in escrow and our obligation to make the
remaining capital commitment is supported by a letter credit. 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 Noncontrolling interest in
Joint Venture loss (income) on the Consolidated Statements of Operations and
Comprehensive Income.

- 45 -

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As
tankers are constructed, we will have the right (except in certain limited
circumstances) to purchase completed tankers from the Joint Venture at
specified prices subject to adjustment, provided that such prices are within
the range of fair values as determined by appraisal. If we do not elect to
purchase a tanker within a specified time period, the Joint Venture may sell
the tanker to a third party; however, the Joint Venture must first allow us to
make an offer to purchase the tanker (except in certain limited circumstances).
Our ability to purchase vessels from the Joint Venture will depend on our
financial condition and liquidity at the time the Joint Venture offers such
vessels for sale. The Joint Venture will use the proceeds from the sale of the
tankers to us, or to third parties if we do not exercise our purchase options,
to, among other things, repay debt and to fund future milestone payments to
NASSCO relating to the construction of the remaining tankers and ultimately to
make distributions to the Joint Ventures equity holders, first to the third
party equity investors, until they receive a specified return, then to Product
Carriers until it receives a specified return, and then on a shared basis
dependent on the returns generated. We anticipate that the $500.0 million of
capital committed to the Joint Venture, together with anticipated proceeds from
the sale of tankers by the Joint Venture to us or to third parties, will be
sufficient to fund the construction of all of the tankers constructed by the
Joint Venture. The financing arrangements of the Joint Venture require
continued reinvestment of proceeds received from the sale of completed product
tankers to us or to third parties to finance the construction of subsequent
product tankers. The acceleration of the tankers construction may require
additional capital at certain periods of time during the construction period,
as the overlapping vessels under construction but not yet sold will need to be
financed simultaneously by the Joint Venture, at levels above current
commitments.

Upon
formation of the Joint Venture, Product Carriers assigned its rights and
obligations with respect to the construction of the first five tankers to the
Joint Venture Investors and we received an arrangement fee of $4.5 million. The
Joint Venture has the right to elect to have rights and obligations under the
NASSCO contract to construct up to four additional tankers assigned to the
Joint Venture at specified times. NASSCO released Product Carriers from any
obligation under the construction contract relating to the first five tankers
and will release Product Carriers from any obligation under the construction
contract relating to tankers six through nine to the extent the rights with
respect to such tankers are also assigned to the Joint Venture. If the Joint
Venture elects not to construct the last four tankers, Product Carriers would
be obligated to obtain alternative financing for their construction or to
transfer the shipyard slots. In such event, it is possible that Product
Carriers will not be able to obtain the necessary financing on acceptable terms
or at all. If Product Carriers is unable to obtain the financing for these four
tankers, it is obligated to reimburse NASSCO for any damages incurred by NASSCO
as a result of these tankers not being constructed, or if they are transferred
to a third party at a loss to NASSCO, up to a maximum of $10.0 million (plus
costs and expenses incurred by NASSCO) for each such tanker, with such amounts
being funded solely out of monies received by Product Carriers in respect of
its equity investment in the first five vessels constructed by the Joint
Venture. In June 2008 the Partnership extended until September 21, 2008 the
expiration date of the option for the Joint Venture Investors to elect to
finance the construction of the sixth and seventh vessels to be constructed
under the Partnerships contract with NASSCO.

New Accounting
Pronouncements

In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) Statement No. 157, Fair
Value Measurement, (FAS 157) effective for fiscal years beginning after
November 15, 2007. FAS 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 157 applies under other accounting pronouncements that require or permit
fair value measurements. Relative to FAS 157, the FASB issued FASB Staff
Position (FSP) 157-2, which defers the effective date of FAS 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a
recurring basis, until fiscal years beginning after November 15, 2008, and
interim periods within those fiscal years. We have adopted FAS 157 as of
January 1, 2008 related to financial assets and financial liabilities. We are
currently evaluating the impact of FAS 157 related to nonfinancial assets and
nonfinancial liabilities on our financial statements.

In
February 2007, the FASB issued FAS Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities - Including an amendment of FAS
Statement No. 115, (FAS 159) effective as of the beginning of fiscal years
beginning after November 15, 2007. FAS 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. The fair value option:

- 46 -

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| |    |                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------
| | 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 have not
elected fair value treatment for any financial instruments as of June 30, 2008.

In
December 2007, the FASB issued FAS Statement No. 160, Noncontrolling Interests
in Consolidated Financial Statements  an amendment of ARB No. 51 effective as
of the beginning of fiscal years beginning after December 15, 2008. This
pronouncement, among other requirements, requires entities with noncontrolling
interests to classify noncontrolling interests as components of equity. This
pronouncement requires entities to be viewed for reporting purposes from an
economic unit perspective rather than a controlling interest perspective. This
pronouncement will impact our financial statement presentation for the 60%
noncontrolling interest of our Joint Venture.

In
December 2007, the FASB issued FAS Statement No. 141 (revised 2007), Business
Combinations (FAS 141(R)), which replaces FAS 141, Business Combinations.
FAS 141(R) retains the underlying concepts of FAS 141 in that all business
combinations are still required to be accounted for at fair value under the
acquisition method of accounting but FAS 141(R) changed the method of applying
the acquisition method in a number of significant aspects. FAS 141(R) is
effective on a prospective basis for all business combinations for which the
acquisition date is on or after the beginning of the first annual period
subsequent to December 15, 2008, with the exception of the accounting for
valuation allowances on deferred taxes and acquired tax contingencies. FAS
141(R) amends FAS 109, Income Taxes, such that adjustments made to valuation
allowances on deferred taxes and acquired tax contingencies associated with
acquisitions that closed prior to the effective date of FAS 141(R) would also
apply the provisions of FAS 141(R). Early adoption is not allowed. We will
evaluate the impact of this pronouncement on any future acquisitions.

In
March 2008, the Emerging Issues Task Force reached a consensus on EITF 07-4,
Application of the Two-Class Method under FASB Statement No. 128, Earnings per
Share, to Master Limited Partnerships. EITF 07-4 requires master limited
partnerships with incentive distribution rights (IDRs), to measure earnings
per unit as it relates to IDRs consistent with the two-class method of
measuring earnings per unit. This issue is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. We are evaluating the impact of this pronouncement.

In
March 2008, the FASB issued FAS Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB Statement
No. 133 (FAS 161). FAS 161 expands the current disclosure
requirements of FAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (FAS 133), such that entities must now provide enhanced
disclosures on a quarterly basis regarding how and why the entity uses
derivatives, how derivatives and related hedged items are accounted for under FAS
133 and how derivatives and related hedged items affect the entitys financial
position, performance and cash flow. Pursuant to the transition provisions of
the Statement, we will adopt FAS 161 in fiscal year 2009 and will present the
required disclosures in the prescribed format on a prospective basis. This
Statement will not impact our financial statements as it is disclosure-only in
nature.

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.

- 47 -

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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;                                                               
| |   |                                                                                                                                                                                                
| | · | our ability
  to remain in compliance with our debt agreements, including by amendment of
  the financial covenants contained therein;                                                         
| |   |                                                                                                                                                                                                
| | · | our ability
  to maximize the use of our vessels;                                                                                                                                              
| |   |                                                                                                                                                                                                
| | · | 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;                                                                                                                                                  
| |   |                                                                                                                                                                                                
| | · | 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 qualifying income, as defined by the IRS;                                                                                                                                
| |   |                                                                                                                                                                                                
| | · | our ability
  to maintain our qualifying income at levels sufficient to maintain our
  status as a publicly-traded partnership;                                                            
| |   |                                                                                                                                                                                                
| | · | 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.                                                                                                                  

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 overseas transportation of grain for humanitarian purposes;                               
| |   |                                                                                                                     
| | · | 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;

- 48 -

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| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | 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;                                                                                                                                
| |   |                                                                                                                                                                                                                     
| | · | our ability
  to amend our Senior Credit Facility on economically acceptable terms;                                                                                                                                 
| |   |                                                                                                                                                                                                                     
| | · | increases in
  interest rates, including as a result of amending our Senior Credit Facility;                                                                                                                        
| |   |                                                                                                                                                                                                                     
| | · | the effect
  of amending our Senior Credit Facility, including limitations imposed on our
  operations and adverse effects on our interest rate hedges due a change 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 our Quarterly
Report on Form 10-Q for the Quarter ended March 31, 2008, as well as in Item
1A of our Annual Report on Form 10-K for the year ended December 31, 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 six months ended June 30, 2008, a 1% change in
our variable interest rates would have increased our interest expense by $1.0
million for the six months ended June 30, 2008, 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 FAS Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 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.

We
had two interest rate swap agreements as of June 30, 2008. 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 June
30, 2008 the fair market values of our two interest rate swaps were a loss of
$6.0 million and a loss $3.1 million.

- 49 -

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The
following is a summary of the economic terms of these agreements at June 30,
2008 (dollars in thousands):

|                       |  |    |            |  
|---------------------- |  | -- | ---------- | -
|Notional amount        |  | $  | 122,500    |  
|Fixed rate paid        |  |    | 5.355      | %
|Variable rate received |  |    | 2.801      | %
|Effective date         |  |    | 8/15/2006  |  
|Expiration date        |  |    | 8/6/2012   |  
|Fair Value             |  | ($ | 5,998      | )
|                       |  |    |            |  
|Notional amount        |  | $  | 98,000     |  
|Fixed rate paid        |  |    | 4.899      | %
|Variable rate received |  |    | 2.801      | %
|Effective date         |  |    | 12/12/2006 |  
|Expiration date        |  |    | 8/6/2012   |  
|Fair Value             |  | ($ | 3,144      | )

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 per Euro. As of June 30, 2008 the fair value of the foreign currency
hedge was approximately $0.8 million. At June 30, 2008, a portion of these
contracts were no longer designated as cash flow hedges, and the portion of the
gain related to the undesignated contracts has been recognized in earnings
currently.

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 notional amount
nine year interest rate cap effective April 1, 2007 for $1.9 million, including
transaction fees. This interest rate cap of the three month U.S. Dollar LIBOR
of 6% is part of a hedging strategy in place at the Joint Venture to protect
the value of its vessels and the chartering contracts thereon. Upon the
completion of the construction of each vessel, the Joint Venture expects to
sell the vessel together with any chartering contract that may be in place on
such vessel. Since the long-term chartering contracts entered into by the Joint
Venture will result in a fixed stream of cash flows over a multi-year period,
the value that the Joint Venture may be able to obtain upon the sale of the
combined vessel and chartering contract is subject to volatility based upon how
interest rates fluctuate. The Joint Venture is utilizing the interest rate cap
to reduce the potential negative impacts to the Joint Ventures cash flows that
could result in movements in interest rates between the date a chartering
contract is entered into for the first product tanker and the anticipated sale
date of such combined vessel and chartering contract. The Joint Venture does
not plan to hold or issue derivative financial instruments for trading purposes,
but has not performed the activities necessary to qualify the contract for
hedge accounting treatment under FAS 133, as amended. The fair market
value of the interest rate cap at June 30, 2008 was $2.3 million. Changes in
the fair value of those instruments are reported in earnings.

The
following is a summary of the economic terms of this agreement at June 30, 2008
(dollars in thousands):

|                  |  |   |          |  
|----------------- |  | - | -------- | -
|Notional amount   |  | $ | 100,000  |  
|Interest rate cap |  |   | 6.00     | %
|Effective date    |  |   | 4/1/2007 |  
|Expiration date   |  |   | 4/1/2016 |  
|Fair Value        |  | $ | 2,296    |  

- 50 -

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|        |                        
|------- | -----------------------
|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 June 30, 2008 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 June 30, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

- 51 -

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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, 2007 and Item 1A. of
Part II of our Quarterly Report of Form 10-Q for the quarter ended March 31,
2008:

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

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

|                                                                                                                                      |                                                                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                      | ·the level
  of consumption of refined petroleum, petrochemical and chemical products in
  the markets in which we operate;                                                                                            
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the level
  of demand for overseas transportation of grain for humanitarian
  organizations;                                                                                                                          
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the prices
  we obtain for our services;                                                                                                                                                                              
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the level
  of demand for our vessels;                                                                                                                                                                                
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the level
  of our operating costs, including payments to our general partner;                                                                                                                                        
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·delays in
  the delivery of newbuilds and the resulting delay in receipt of revenue from
  those vessels;                                                                                                             
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the effect
  of governmental regulations and maritime self-regulatory organization
  standards on the conduct of our business;                                                                                        
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the level
  of unscheduled off-hire days and the timing of, and number of days required
  for, scheduled drydockings of our vessels; and                                                                              
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·prevailing
  economic and competitive conditions.                                                                                                                                                                     
|                                                                                                                                      |                                                                                                                                                                                                                        
|In addition,
  the actual amount of cash we will have available for distribution each
  quarter will depend on other factors such as:
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the level
  of capital expenditures we make, including for acquisitions, drydockings for
  repairs, repurposing or retrofitting of vessels to comply with OPA 90,
  newbuildings, and compliance with new regulations;
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the
  restrictions contained in our debt instruments and our debt service
  requirements;                                                                                                                             
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·fluctuations in our working capital needs;                                                                                                                                                                            
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·our
  ability to make working capital or other borrowings, including borrowings to
  pay distributions to unitholders; and                                                                                            
|                                                                                                                                      |                                                                                                                                                                                                                        
|                                                                                                                                      | ·the amount
  of reserves, including reserves for future capital expenditures and other
  matters, established by our general partner.                                                                                 

- 52 -

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The
agreements governing our indebtedness prohibit us from paying distributions
following a default, including without limitation any failure to satisfy the
financial covenants in our credit agreement. 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 distributions we have historically paid on our common units
(excluding our subordinated and general partner units) are $5.1 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 nine quarters (five quarters if the
minimum quarterly distributions on our subordinated and general partner units are
also paid).

We
are facing difficult current market conditions. Demand in the spot market,
where five of our six ITBs are currently operated, deteriorated significantly
beginning in late March 2008 due to overall declining economic activity and
decreased demand for the domestic coastwise transportation of petroleum
products. Refinery utilization has declined significantly, fuel prices for
operating our vessels are at record levels and increased industry capacity from
newbuilds has created significant competitive pressures. Due to these market
shifts, our ITBs have recently incurred idle periods greater than, and
chartering rates below, our expectations at the beginning of 2008.
Additionally, during the first half of 2008, we have observed modest decreased
demand for the domestic coastwise transportation of chemical products served by
our chemical transporting vessels, which we believe was due to our customers
working off inventory levels.

As
a result, our earnings before interest, taxes and depreciation and amortization
(EBITDA) and liquidity have come under increasing pressure due to the current
difficult market conditions, which has significantly increased the likelihood
that we will not be able to remain in compliance with certain financial ratio
covenants under our senior credit facility as early as the end of the third
quarter. If we are not in compliance with our financial covenants, our lenders
have a number of remedies, including declaring all outstanding borrowings to be
immediately due and payable and refusing to make funds available under the
revolving credit facility. In addition, we would be prohibited from making
distributions on our common units until we are again in compliance, although
any unpaid distributions will continue to accrue on the common units. In
addition, the lenders under the senior credit facility could prohibit us from
paying interest on the senior notes. Our lenders right to demand immediate
payment of our outstanding indebtedness upon the occurrence of a default under
the Senior Credit Facility, coupled with a substantial doubt about our ability
to repay this indebtedness immediately and accordingly in such circumstances to
continue as a going concern, leads to the need to successfully renegotiate our
existing, or secure alternative, financing arrangements. There can be no
assurance that we will be successful in renegotiating our existing, or securing
alternative financing arrangements.

In
light of these liquidity pressures, we did not pay a distribution on our
subordinated units and general partner units in respect of the fourth quarter
of 2007 and first quarter of 2008, and will not pay a distribution on any of
our units in respect of the second quarter of 2008. Based on discussions to
date with our lenders regarding an amendment to the Senior Credit Facility, we
believe any amendment will prohibit the payment of distributions on any units
for at least a specified period of time.

If
the Joint Venture elects not to construct the remaining four tankers, Product
Carriers will be obligated to arrange financing for the construction of the
tankers or assign the contract to a third party. If we provide capital to
Product Carriers for such purpose, this will limit the cash we have available
to make quarterly distributions on the units. Our ability to provide capital to
Product Carriers and, therefore, the Joint Venture will be limited to an extent
by our debt agreements.

- 53 -

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We are dependent on
our cash flow and borrowings under our revolving credit facility to meet our
operating debt service and working capital requirements.

We are
dependent on our cash flow from operations and borrowing under our revolving
credit facility to meet our operating debt service and working capital
requirements. Our cash flow from operations has come under increasing pressure
due to the current market conditions. In addition, participation in the spot
market requires us to carry higher amounts of working capital, as under spot
charters fuel costs are our responsibility and are paid at the time fuel is
delivered, and not realized economically until payment is made to USS by the
customer. Additionally, payment generally occurs at the completion of a voyage,
compared to time charters, where payment is generally made by the customer at
the beginning of a fixed period of time, such as a month. In addition, grain
voyages, where we are paid following the grain voyage reaching its final
destination, tend to be substantially longer in duration than refined petroleum
product voyages. As we add two additional vessels in 2008 and our ITBs
participate more in the spot market, USS expects its working capital
requirements to increase. We have limited availability under our credit
facility to finance this increase in working capital requirements, and there
can be no assurance that our lenders under the revolving credit facility will
make advances to us when requested. Our ability to pay the August 15, 2008
interest payment of $6.5 million on the senior notes will depend in part on our
ability to borrow under our revolving credit facility.

An increase in the price of fuel has
adversely affected our business and results of operations.

The
cost of fuel for our vessels is a significant component of our voyage expenses
under our voyage charters, and we have recently experienced significant
increases in the cost of fuel used in our operations. While we have been able
to pass a portion of these increases on to our customers pursuant to the terms
of our charters, there can be no assurances that we will be able to pass on any
future increases in fuel prices. The overall decrease in demand for waterborne
transportation of petroleum, petro-chemical and chemical products has made it
more difficult for us to pass on to our customers the significant increase in
fuel prices we have recently experienced while remaining competitive on charter
rates with our competitors. Our fuel costs for the six months ended June 30,
2008 (excluding fuel costs for the ATB Freeport) increased $6.2 million over our
fuel costs in the first half of 2007, of which only $3.2 million was covered by
fuel surcharges. If fuel prices continue to increase and we are not able to
pass such increases on to our customers, our business, results of operations,
financial condition and ability to make cash distributions and to pay interest
on, and principal of, our indebtedness may be adversely affected.

Our results of
operations are dependent in part on grain voyages, which have different
characteristics than our historical voyages and make a comparison of our
present results with our prior results less meaningful. We have limited
experience in grain voyages, which are subject to risks that differ from the
risks of transportation of refined petroleum, petrochemical and commodity chemical
products. In addition, there can be no assurance these grain voyages will
continue.

During
2008 we have been successful in employing three of our ITBs that might
otherwise have been idle in the overseas transportation of grain for humanitarian
organizations. These voyages have different characteristics than our
transportation of refined petroleum products, including longer voyages, voyages
overseas and different revenue and expense recognition policies. These
different characteristics make a comparison of our present results with our
prior results less meaningful. In addition, we do not have any long-term
contracts to transport grain and there can be no assurance that we will be able
to continue to obtain these grain voyages, either due to increased competition
or reduced demand. The grain voyages are financed by the U.S. government and
are subject to annual budget appropriations and, therefore, subject to the
vagaries that surround annual governmental appropriations.

We
have limited experience in grain voyages, which are subject to risks that
differ from the risks of transportation of refined petroleum, petrochemical and
commodity chemical products. These risks include, among others, travel
overseas, reliance on third parties to load and unload grain, and delivery of
grain to countries that have not always had stable relationships with the
United States.

Furthermore,
to the extent more of our activities involve the transportation of products
that do not generate qualifying income, it will be more difficult for us to
insure that at least 90% of our revenue is qualifying income. If less than
90% of our revenue is qualifying income, we will be taxed as a corporation
rather than a partnership, which may result in a significant reduction in the
amount of cash available for distribution to unitholders.

- 54 -

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

United
States Shipping Master LLC (Shipping Master) currently indirectly owns
the 2% general partner interest and directly owns an approximately 37% limited
partner interest in us and owns and controls our general partner. Conflicts of
interest may arise between our general partner and its affiliates, on the one
hand, and us and our unitholders, on the other hand. As a result of these
conflicts, our general partner may favor its own interests and the interests of
its affiliates over the interests of our unitholders, including in connection
with any strategic alternative undertaken by us. These conflicts include, among
others, the following situations:

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ·our
  general partner is allowed to take into account the interests of parties
  other than us, such as our affiliates, in resolving conflicts of interest,
  which has the effect of limiting its fiduciary duty to our unitholders;                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ·our
  general partner has limited its liability and reduced its fiduciary duties
  under Delaware law and has also restricted the remedies available to our
  unitholders for actions that, without such limitations, might constitute
  breaches of fiduciary duty and, by purchasing common units, unitholders will
  be deemed to have consented to some actions and conflicts of interest that
  might otherwise constitute a breach of fiduciary or other duties under
  applicable law;                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ·our
  general partner determines the amount and timing of asset purchases and
  sales, capital expenditures (including, based on the applicable facts and
  circumstances, whether a capital expenditure is classified as a maintenance
  capital expenditure, which reduces basic surplus, or an expansion capital
  expenditure, which does not reduce basic surplus), borrowings, issuances of
  additional partnership securities and reserves, each of which can affect the
  amount of cash that is available for distribution to our unitholders and to
  pay interest on, and principal of, our indebtedness;
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ·in some
  instances, our general partner may cause us to borrow funds in order to
  permit the payment of cash distributions, even if the purpose or effect of
  the borrowing is to make a distribution on the subordinated units or to make
  incentive distributions;                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ·our
  general partner determines which costs incurred by it and its affiliates are
  reimbursable by us;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ·our
  partnership agreement does not restrict our general partner from causing us
  to pay it or its affiliates for any services rendered on terms that are fair
  and reasonable to us or entering into additional contractual arrangements
  with any of these entities on our behalf;                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ·our
  general partner controls the enforcement of obligations owed to us by it and
  its affiliates; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ·our
  general partner decides whether to retain separate counsel, accountants or
  others to perform services for us.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ·permits
  our general partner to make a number of decisions in its individual capacity,
  as opposed to in its capacity as our general partner. This entitles our
  general partner to consider only the interests and factors that it desires,
  and it has no duty or obligation to give any consideration to any interest
  of, or factors affecting, us, our affiliates or any limited partner or
  unitholder. Decisions made by our general partner in its individual capacity
  will be made by its sole owner, Shipping Master, and not by the board of
  directors of our general partner. Examples include the exercise of its
  limited call right, its rights to transfer or vote the units it owns and its
  determination whether or not to consent to any merger or consolidation of the
  Partnership or amendment of the partnership agreement;
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ·provides
  that our general partner will not have any liability to us or our unitholders
  for decisions made in its capacity as general partner so long as it acted in
  good faith, meaning that it reasonably believed that the decision is in our
  best interests;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ·generally
  provides that affiliated transactions and resolutions of conflicts of
  interest not approved by the conflicts committee of the board of directors of
  our general partner and not involving a vote of unitholders must be on terms
  no less favorable to us than those generally being provided to or available
  from unrelated third parties or be fair and reasonable to us and that, in
  determining whether a transaction or resolution is fair and reasonable, our
  general partner may consider the totality of the relationships between the
  parties involved, including other transactions that may not be particularly
  advantageous or beneficial to us;                                                                                                                                                                     

- 55 -

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ·provides
  that in resolving conflicts of interest, it will be presumed that in making
  its decision the general partner or its conflicts committee acted in good
  faith, and in any proceeding brought by or on behalf of any limited partner
  or us, the person bringing or prosecuting such proceeding will have the
  burden of overcoming such presumption; and                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ·provides
  that our general partner and its officers and directors will not be liable
  for monetary damages to us, our limited partners or assignees for any acts or
  omissions unless there has been a final and non-appealable judgment entered
  by a court of competent jurisdiction determining that the general partner or
  those other persons acted in bad faith or engaged in fraud, willful
  misconduct or gross negligence.

We have subsidiaries
that are treated as corporations for federal income tax purposes and subject to
corporate-level income taxes.

We
attempt to maintain the required level of qualifying income by conducting the
operations of our vessels the Chemical
Pioneer, the ATB Freeport,
the ITB Philadelphia, the ITB Groton, the ITB Jacksonville, the ITB Baltimore, theITB New York and the Sea Venture through subsidiaries that are
taxed as corporations. The operation of these vessels in subsidiaries taxed as
corporations generally reduces the amount of cash available for payment of
distributions on our units and the payment of principal of, and interest on,
our outstanding debt. Due to the reduced demand in the spot market for
transportation of refined petroleum products, we have employed more of our ITBs
in the transportation of products that do not generate qualifying income,
thereby requiring us to operate five of our six ITBs through subsidiaries taxed
as corporations in order to remain in compliance with the qualifying income
test necessary to retain our status as a publicly-traded master limited
partnership. We may elect to, or be required to, conduct additional operations
through these or other corporate subsidiaries in the future. We may be required
to place other of our vessels, including one or more of our ATB units under
construction, in subsidiaries taxed as corporations. In addition, we have three
other subsidiaries organized as corporations: U.S. Shipping Finance Corp.,
which is co-issuer of our senior notes, USS PC Holding Corp. and USS JV
Manager, Inc. USS JV Manager, Inc. receives management and other fees
from the Joint Venture. These corporate subsidiaries are subject to
corporate-level tax, which may reduce the cash available for distribution to
unitholders. If the IRS were to successfully assert that these corporations
have more tax liability than we anticipate, or legislation was enacted that
increased the corporate tax rate, our cash available for distribution to
unitholders would be further reduced.

To
the extent more of our activities involve the transportation of products that
do not generate qualifying income, it will be more difficult for us to insure
that at least 90% of our revenue is qualifying income. If less than 90% of
our revenue is qualifying income, we will be taxed as a corporation rather
than a partnership, which may result in a significant reduction in the amount
of cash available for distribution to unitholders. We may be required, or may
elect, in the future to be taxed as a corporation rather than a partnership,
which could have adverse tax consequences for some or all of our partners.

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

On
April 1, 2007, we issued to each of Messrs. Ganz, Kearns, Luterman and OKelley
3,065 common units under our Long-Term Incentive Plan.

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

Not
applicable.

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

None.

- 56 -

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

On
August 8, 2008, Ronald L. OKelley, a director of the general partner of the
Partnership, was elected President & Chief Executive Officer of the Partnership. Mr. Paul
Gridley, who has served as the Partnerships chairman and chief executive
officer, has relinquished his role as Chief Executive Officer, although he will
remain as Chairman of the Board of Directors.

Compensation
arrangements for Mr. OKelley are being finalized. In addition, the
Compensation Committee of the Board of Directors is developing an incentive
compensation plan for Mr. OKelley.

Ronald
L. OKelley joined the board of directors of our general partner in October
2004. Mr. OKelley is chairman and chief executive officer of Atlantic Coast
Venture Investments Inc., a private investment company. Mr. OKelley served as
executive vice president, chief financial officer and treasurer of State Street
Corporation from 1995 to 2002, as chief financial officer at Douglas Aircraft
Company from 1991 to 1995 and as chief financial officer at Rolls Royce Inc.
from 1983 to 1991. He served in senior financial positions at Citicorp from
1975 to 1983 and at Texas Instruments Incorporated from 1969 to 1975. Mr.
OKelley is a director of Selective Insurance Group, Inc. Mr. OKelley serves as
an advisor to the Donald Jones Center for Entrepreneurship at the Tepper School
of Business and is a member of the National Association of Corporate Directors.
Compensation arrangements for Mr. OKelley are being finalized.

|        |         
|------- | --------
|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.

- 57 -

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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: August
11, 2008

| |                               |                                               
| | ----------------------------- | ----------------------------------------------
| | U.S.
  SHIPPING PARTNERS L.P.
| |                               |                                               
| | By:                           | US Shipping
  General Partner LLC,            
| |                               | its general
  partner                         
| |                               |                                               
| | by:                           | /s/ Ronald
  L. OKelley                      
| |                               |                                               
| |                               | Ronald L.
  OKelley                          
| |                               | President & Chief
  Executive Officer         
| |                               | (principal
  executive officer)               
| |                               |                                               
| | by:                           | /s/ Albert
  E. Bergeron                      
| |                               |                                               
| |                               | Albert E.
  Bergeron                          
| |                               | Vice PresidentChief
  Financial Officer      
| |                               | (principal
  financial and accounting officer)

- 58 -

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