FORBEARANCE AGREEMENT

Exhibit 10.1

FORBEARANCE AGREEMENT

          FORBEARANCE AGREEMENT (this “ Agreement ”), dated as of December 30, 2008 (the “ Effective Date ”), is entered into by and among U.S. SHIPPING PARTNERS L.P. , a Delaware limited partnership (the “ MLP ”), U.S. SHIPPING OPERATING LLC , a Delaware limited liability company (“ Operating LLC ”), ITB BALTIMORE LLC , a Delaware limited liability company, ITB GROTON LLC , a Delaware limited liability company, ITB JACKSONVILLE LLC , a Delaware limited liability company, ITB MOBILE LLC , a Delaware limited liability company, ITB NEW YORK LLC , a Delaware limited liability company, ITB PHILADELPHIA LLC , a Delaware limited liability company, USS CHARTERING LLC , a Delaware limited liability company (“ Charter LLC ”), USCS CHEMICAL CHARTERING LLC , a Delaware limited liability company (“ Chemical Chartering ”), USCS CHEMICAL PIONEER INC. , a Delaware corporation (“ Chemical Pioneer ”), USCS CHARLESTON LLC , a Delaware limited liability company (“ Charleston ”), USCS CHARLESTON CHARTERING LLC , a Delaware limited liability company (“ USCS Chartering ”), USCS ATB LLC , a Delaware limited liability company (“ ATB LLC ”), USS ATB 1 LLC , a Delaware limited liability company (“ ATB1 LLC ”), USS ATB 2 LLC , a Delaware limited liability company (“ ATB2 LLC ”), USCS SEA VENTURE LLC , a Delaware limited liability company (“ Sea Venture LLC ”), USS M/V HOUSTON LLC , a Delaware limited liability company (“ Houston LLC ”), U.S. SHIPPING FINANCE CORP. , a Delaware corporation (“ Finance Corp. ”), USS JV MANAGER INC. , a Delaware corporation (“ JV Manager ”), USS PC HOLDING CORP. , a Delaware corporation (“ PC Holding ”) and USS PRODUCT MANAGER LLC , a Delaware limited liability company (“ Product Manager ”) (each of the foregoing being individually called a “ Borrower ” and collectively, the “ Borrowers ”), the various financial institutions as are or may become parties to the Credit Agreement as hereinafter defined (collectively, the “ Lenders ”), CANADIAN IMPERIAL BANK OF COMMERCE , as Letter of Credit Issuer, CANADIAN IMPERIAL BANK OF COMMERCE (“ CIBC ”), as administrative agent (in such capacity together with its successors in such capacity, the “ Administrative Agent ”) for the Lenders, LEHMAN COMMERCIAL PAPER INC. , as the syndication agent (in such capacity together with its successors in such capacity, the “ Syndication Agent ”) for the Lenders, and KEYBANK NATIONAL ASSOCIATION , as collateral agent (in such capacity, together with its successors in such capacity, the “ Collateral Agent ”) for the Secured Parties (as defined in the Credit Agreement hereinafter defined).

W I T N E S S E T H:

          WHEREAS , the Borrowers, the Lenders, the Letter of Credit Issuer, the Administrative Agent, the Syndication Agent and the Collateral Agent have entered into that certain Third Amended and Restated Credit Agreement dated as of August 7, 2006, as amended by the First Amendment to Third Amended and Restated Credit Agreement dated as of August 28, 2006, as further amended by the Second Amendment to Third Amended and Restated Credit Agreement dated as of April 25, 2007, as further amended by the Third Amendment to Third Amended and Restated Credit Agreement dated as of June 29, 2007, as further amended by the Waiver and Fourth Amendment to Third Amended and Restated Credit Agreement dated as of October 20, 2008 (as so amended and as may be further amended or otherwise modified, the “ Credit Agreement ”);

          WHEREAS, the Borrowers have informed the Lenders, the Letter of Credit Issuer, the Administrative Agent, the Syndication Agent and the Collateral Agent that they will fail to (i) make the scheduled principal repayment due in respect of the Term Loans on December 31, 2008 and (ii) make the payment of some or all of the interest due in respect of the Loans on December 31, 2008, which will result in the occurrence of Events of Default under Section 8.1.1 of the Credit Agreement (the “ Prospective Events of Default ”);

          WHEREAS, the Borrowers have requested that the Lenders, the Letter of Credit Issuer, the Administrative Agent, the Syndication Agent and the Collateral Agent forbear from exercising certain rights and remedies in respect of the Prospective Events of Default, and subject to the terms and conditions hereof, and Lenders, the Letter of Credit Issuer, the Administrative Agent, the Syndication Agent and the Collateral Agent are willing to agree to such request, but only upon the terms and conditions set forth herein.

          NOW THEREFORE , in consideration of the foregoing and the mutual agreements set forth herein, the parties hereto agree as follows:

           SECTION 1. Definitions . Unless otherwise defined in this Agreement, each capitalized term used in this Agreement has the meaning assigned to such term in the Credit Agreement.

           SECTION 2. Forbearance Provisions . On the terms and subject to the conditions set forth in this Agreement, the Agents and the Majority Lenders agree to forbear from taking any action or exercising any right or remedy permitted to be taken or exercised by them under the Credit Agreement or the other Loan Documents with respect to the Prospective Events of Default during the period (the “ Forbearance Period ”) commencing on the Effective Date (as hereinafter defined) and terminating on the Termination Date (as hereinafter defined); provided , however , that such forbearance shall extend only to the Prospective Events of Default and not to any other Defaults or Events of Default now existing or occurring after the Effective Date and shall not in any way or manner restrict the Agents or the Lenders from exercising any rights or remedies they may have with respect to the Prospective Events of Default from and after the termination or expiration of the Forbearance Period or with respect to any other Default or Event of Default at any time. “Termination Date” shall mean the earliest to occur of any of the following events: (i) 5:00 p.m. (Eastern time) on February 10, 2009; (ii) the occurrence and continuance of an Event of Default other than the Prospective Events of Default; and (iii) the failure by any Loan Party to comply with any of the provisions of this Agreement or any other documents or agreements to be entered into or delivered in connection with this Agreement. The Forbearance Period shall automatically terminate and expire on the Termination Date without any requirement for notice to any Loan Party or any other Person and all rights, remedies and privileges of the Agents and the Lenders under the Credit Agreement and the other Loan Documents shall be available to, and capable of exercise by, the Agents and the Lenders.

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           SECTION 3. Restructuring and Strategic Alternatives . During the term of this Forbearance Agreement, the Borrowers shall engage in good faith negotiations with the Administrative Agent and the Lenders regarding restructuring and strategic alternatives which shall include a possible sale of the Borrowers. Failure of the Borrower to conduct such good faith negotiations shall constitute an Event of Default. The Administrative Agent and the Lenders shall not incur any liabilities or obligations under this provision.

           SECTION 4. Representations and Warranties, Etc . To induce the Lenders to enter into this Agreement, each of the Borrowers shall have represented and warranted to the Administrative Agent, the Letter of Credit Issuer, the Collateral Agent, the Syndication Agent and the Lenders, and by its execution and delivery of this Agreement such Borrower does hereby represent and warrant to the Administrative Agent, the Letter of Credit Issuer, the Collateral Agent, the Syndication Agent and the Lenders, that: