This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are only our management's current expectations. They are based on our management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include, among other things, the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities and the effects of future regulation and competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "anticipates," "believes," "estimates," "expects," "future," "intends," "plans" and similar terms.

Forward-looking statements involve risks, uncertainties and assumptions. Although the Company does not make forward-looking statements unless it believes it has a reasonable basis for doing so, it cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks disclosed in our Annual Report on Form 10-K filed with the SEC on March 14, 2008, and in this Quarterly Report, as well as other unforeseen risks. You should not rely on any forward-looking statements.

Recent Developments

The company focuses on providing complete and complex transportation solutions to our clients to optimize their global supply chains. This distinguishes us from traditional dry cargo shipping companies. We have a strong position in various trade lanes in the Far East, South America, North America, the Caribbean, the Middle East and Africa. We have expanded and upgraded our fleet which now numbers 46 vessels. Additionally, we have secured funding for six new vessels to be delivered through 2010.

The global financial crisis has resulted in a reduction in the demand for shipping services due to reduced liquidity, and accordingly, a significant downturn in spot freight and time charter rates. A reduction in the availability of vessel acquisition funding has caused potential buyers to delay, postpone or abandon their vessel acquisition plans.

Earlier in 2008, we were actively pursuing opportunities to build additional Roymar Class ships in China for delivery through 2011. In October, we temporarily suspended these efforts in consideration of the current shipping market turmoil.

Considering the decline in the spot shipping and financial credit markets, the Company updated its analysis of estimated undiscounted future cash flows for its fleet of vessels in accordance with SFAS 144 Accounting for the Impairment or Disposal of Long-Lived Assets. Its analysis indicated that no impairment was evidenced and accordingly, the Company determined that there was no impairment of long-lived assets at September 30, 2008. The Company will continue to monitor projected undiscounted future cash flows to determine if impairment of long-lived assets becomes evident.

Management is taking appropriate measures to manage the business during the global economic crisis and to be well positioned for recovery.

On September 8, 2008, we signed a Memorandum of Agreement and made a deposit of $4.1 million to purchase the heavylift tweendecker CEC Cardigan for $20.6 million. The vessel, which will be renamed Zia Belle, is expected to be delivered during the fourth quarter 2008.

On September 16, 2008, the Company remitted $2.6 million to an escrow account in connection with the acquisition of a 50% interest in a company that owns a limestone mine located in the Dominican Republic. The acquisition is contingent upon the selling party meeting certain conditions as defined in the agreement. It is anticipated that the acquisition will close in November 2008.

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The following is a discussion of our financial condition at September 30, 2008 and December 31, 2007 and our results of operations comparing the three and nine months ended September 30, 2008 with the three and nine months ended September 30, 2007.

To conform to the 2008 presentation, we reclassified 2007 despatch expenses, which were included in voyage expense, to voyage revenue. Despatch transactions represent a negotiated payment for loading and unloading cargo faster than agreed and reflect an adjustment to revenue rather than an expense. These reclassifications did not impact net income. We also reclassified drydock expenditures from an investing activity to an operating activity.

TBS Logistics Incorporated ("Logistics"), a wholly owned subsidiary that started operations in the fourth quarter 2007, provides fully-integrated cargo and transport management services. Logistics augments our ocean transportation services. We presented Logistics operations separately because of its recent growth.

You should read this section in conjunction with the consolidated financial statements including the related notes to those financial statements included elsewhere in this Quarterly Report.

Overview

We are an ocean transportation services company that offers worldwide shipping solutions through liner, parcel, bulk and vessel chartering services. We offer our services globally in more than 20 countries to over 300 customers through a network of affiliated service companies. The Company's results for three and nine months ended September 30, 2008 have been very strong. However, current economic conditions and a protracted global recession could adversely affect future results.

Our financial results are largely driven by the following factors:

· macroeconomic conditions in the geographic regions where we operate;

· general economic conditions in the industries in which our customers operate;

· changes in our freight and sub-time charter rates - rates we charge for vessels we charter out - and, in periods when our voyage and vessel expenses increase, our ability to raise our rates to pass such cost increases through to our customers;

· the extent to which we are able to efficiently utilize our controlled fleet and optimize its capacity; and

· the extent to which we can control our fixed and variable costs, including those for port charges, fuel, commission expense and stevedore and other cargo-related expenses.

Drydocking

In the last three years, our fleet has grown from 29 to 46 vessels. These vessels must be drydocked twice during a five-year cycle. Thus, our controlled fleet of 46 vessels at September 30, 2008 would result in 92 drydockings over five years, or an average of 18 vessels per year.

We strive to maintain and upgrade our vessels to the highest standards. The vessels in our fleet have an average age of 21.5 years. Accordingly, we have decided to accelerate the timing of steel renewals and reinforcements on many of the vessels that were drydocked in 2007 as well as vessels scheduled for drydocking in 2008. We expect that these renewals and reinforcements would have been required in the next five to ten years.

Below is a summary of our quarterly drydocking activity during the nine months ended September 30, 2008:

· During the first quarter of 2008, one vessel that entered into drydock during the fourth quarter of 2007 continued its drydocking for 15 days and four vessels entered drydock for a total of 132 days.

· During the second quarter of 2008, three vessels that entered into drydock during the first quarter of 2008 continued their drydockings for 48 days and five vessels entered drydock for a total of 144 days.

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Our schedule of vessels anticipated to be drydocked during the fourth quarter of 2008, including estimated number of drydock days and metric tons of steel renewal, is as follows:

                              Anticipated       Anticipated            Estimated
                           Number of vessels     Number of           metric tons of
                           entering drydock     drydock days            steel to
                            during quarter     during quarter         be installed

     Fourth Quarter 2008                   2              190    (a)            810

(a) The anticipated number of drydock days during the quarter includes estimated drydock days of the three vessels that entered into drydock during the third quarter of 2008 and continued into the fourth quarter of 2008.

We estimate that vessel drydockings that require less than 100 metric tons of steel renewal will take from 25 to 35 days and that vessel drydockings that require 100 to 500 metric tons of steel renewal will take from 35 to 75 days. Our estimates are based on current and anticipated congestion in the repair shipyards, which could be adversely affected by any unanticipated weather or congestion in the shipyard. First drydocking after the vessel acquisitions, which includes steel renewal and reinforcement, are capitalized as vessel improvements. Further, our fourth quarter 2008 drydock schedule is subject to change based on unanticipated commercial needs of our business.

Components of revenue and expense

We report our revenue as voyage revenue, reflecting the operations of our vessels that are not chartered out, and charter revenue, reflecting the operations of our vessels that have been chartered out to third parties. Voyage revenue and expenses for each reporting period include estimates for voyages in progress at the end of the period. Estimated profits from voyages in progress are recognized on a percentage of completion basis by prorating the estimated final voyage revenue and expenses using the ratio of voyage days completed through period end to total voyage days. When a loss is forecast for a voyage, the full amount of the anticipated loss is recognized in the period in which that determination is made. Revenue from time charters in progress is calculated using the daily charter hire rate, net of daily expenses multiplied by the number of voyage days on-hire through period end.

Voyage revenue consists of freight charges paid to our subsidiaries for the transport of customers' cargo. Freight rates are set by the market and depend on the relationship between the demand for ocean freight transportation and the availability of appropriate vessels. The key factors driving voyage revenue are the number of vessels in the fleet, freight voyage days, revenue tons carried and the freight rates.

Time charter revenue consists of a negotiated daily hire rate for the duration of a voyage. The key factors driving time charter revenue are the number of days that vessels are chartered out and the daily charter hire rates.

Voyage expenses consist primarily of fuel, port costs, stevedoring, commissions and lashing materials, which are paid by our subsidiaries.

Vessel expenses are vessel operating expenses that consist of crewing, stores, lube oil, repairs and maintenance including registration taxes and fees, insurance and communication expenses for vessels we control, and charter hire fees we pay to owners for use of their vessels. These costs are paid by our subsidiaries.

Depreciation and amortization expense is computed on the basis of 30-year useful lives for our vessels.

Commissions on freight and port agency fees are paid to unrelated companies and TBS Commercial Group Ltd., a company that is owned by our principal shareholders. Renewal of the current management agreements with TBS Commercial Group Ltd. and approval of any new management agreements or amendments to the current management agreements with TBS Commercial Group Ltd. are subject to approval by the Compensation Committee of our Board of Directors.

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Results of Operations

Comparison of the three months ended September 30, 2008 and September 30, 2007

                               Three Months Ended               Three Months Ended
                               September 30, 2008               September 30, 2007               Increase (Decrease)
                                            As a % of                         As a % of
                          In Thousands    Total Revenue    In Thousands     Total Revenue   In Thousands      Percentage

Voyage revenue            $     161,397            88.0   $       70,873             77.4   $      90,524           127.7
Time charter revenue             19,308            10.5           20,557             22.4          (1,249 )          (6.1 )
Logistics revenue                 2,045             1.1                                             2,045
Other revenue                       572             0.4              140              0.2             432
    Total revenue               183,322           100.0           91,570            100.0          91,752           100.2

Voyage expense                   52,882            28.8           22,942             25.1          29,940           130.5
Logistics expense                 1,726             0.9                                             1,726
Vessel expense                   30,759            16.9           22,192             24.2           8,567            38.6
Depreciation and
amortization                     19,980            10.9            9,032              9.9          10,948           121.2
General and
administrative                   14,121             7.7            7,960              8.7           6,161            77.4
    Total operating
    expenses                    119,468            65.2           62,126             67.9          57,342            92.3
Income from operations           63,854            34.8           29,444             32.1          34,410           116.9
Other (expenses) and
income
    Interest expense             (5,041 )          (2.7 )         (2,603 )           (2.8 )        (2,438 )          93.7
    Other income
    (expense)                       330             0.2              162              0.2             168           103.7
Net income                $      59,143            32.3   $       27,003             29.5   $      32,140           119.0

Voyage revenue

Voyage revenue increased to $161.4 million for the three months ended September 30, 2008. The increase in our voyage revenue is attributable primarily to an increase in revenue tons carried, coupled with an increase in average freight rates. The key factors driving voyage revenue are the number of vessels in the fleet, freight voyage days, freight rates, and tons carried.

Revenue tons carried increased 967,324 tons or 58.2% to 2,628,585 tons for the three months ended September 30, 2008 from 1,661,261 tons for the same period in 2007. The increase in revenue tons carried is principally due to an increase in aggregate cargoes carried.

Average freight rates for the three months ended September 30, 2008, as compared to the same period in 2007, increased $18.74 per ton, or 43.9%, to $61.40 per ton from $42.66 per ton. The increase in average freight rates was due to the strength of the freight market for all our major cargoes, including our high-volume, low-freighted aggregates bulk cargo, that we handled in 2008 as compared to 2007. Excluding aggregates bulk cargo the average freight rates would have increased $26.61 per ton or 38.4% to $95.85 per ton for the three months ended September 30, 2008 as compared to $69.24 per ton for the same period in 2007. In October 2008, we saw a significant downturn in the freight market due to worldwide economic turmoil, which we believe will have an impact on freight rates for next quarter and possibly beyond. The average freight rates on aggregates bulk cargo increased to $18.30 per ton from $7.38 per ton for the same period in 2007. While average freight rates on aggregates bulk cargo are lower than average freight rates on other types of cargoes, voyage costs also are lower resulting in comparable daily time charter equivalent rates. For the three months ended September 30, 2008, and 2007, we had contracts of affreightment, expiring late 2009, under which we carried approximately 1,653,000 and 1,068,000 revenue tons and generated $61.1 million and $21.8 million of voyage revenue, respectively.

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                                            Three Months Ended September 30,
                                               2008                  2007

Number of vessels (1)                                  36                    23
Freight voyage days (2)                             3,296                 2,157
Days on hire (3)                                    3,347                 2,169
Revenue tons carried (thousands) (4)
For all cargoes                                     2,628                 1,661
Excluding aggregates                                1,461                   947
Aggregates                                          1,167                   714
Freight Rates (5)
For all cargoes                           $         61.40       $         42.66
Excluding aggregates                      $         95.85       $         69.24
Daily time charter equivalent rates (6)   $        33,143       $        22,527

(1) Weighted average number of vessels in the fleet, not including vessels chartered out.
(2) Number of days that our vessels were earning revenue, not including vessels chartered out.
(3) Number of days that our vessels were available for hire, not including vessels chartered out.
(4) Revenue tons is a measurement on which shipments are freighted. Cargoes are rated as weight (based on metric tons) or measure (based on cubic meters); whichever produces the higher revenue will be considered the revenue ton.
(5) Weighted average freight rates measured in dollars per revenue ton.
(6) Time Charter Equivalent or "TCE" rates are defined as voyage revenue less voyage expenses during the period divided by the number of available freight voyage days during the period. Voyage expenses include: fuel, port call, commissions, stevedore and other cargo related and miscellaneous voyage expenses. No deduction is made for vessel or general and administrative expenses. TCE is an industry standard for measuring and analyzing fluctuations between financial periods and as a method of equating TCE revenue generated from a voyage charter to time charter revenue.

The following table shows revenues attributed to our principal cargoes:

                                               Three Months Ended
                              September 30, 2008               September 30, 2007             Increase (Decrease)
                                           As a % of                         As a % of
                                         Total Voyage                      Total Voyage
     Description         In Thousands       Revenue       In Thousands        Revenue      In Thousands         %

Steel products           $      41,364            25.6   $       23,951             33.8   $      17,413         72.7
Metal concentrates              26,241            16.3            9,387             13.2          16,854        179.5
Agricultural products           27,011            16.7           12,507             17.7          14,504        116.0
Aggregates                      21,370            13.2            5,271              7.4          16,099        305.4
Other bulk cargo                18,194            11.3            5,803              8.2          12,391        213.5
Project cargo                    5,938             3.7              269              0.4           5,669
Rolling stock                    6,479             4.0            3,158              4.5           3,321        105.2
Automotive products              3,142             1.9            1,412              2.0           1,730        122.5
General cargo                    4,006             2.5            2,271              3.2           1,735         76.4
Fertilizers                      6,095             3.8            5,037              7.1           1,058         21.0
Other                            1,557             1.0            1,807              2.5            (250 )      (13.8 )
Total voyage revenue     $     161,397           100.0   $       70,873            100.0   $      90,524        127.7

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Time charter revenue

Time charter revenue decreased to $19.3 million for the three months ended September 30, 2008. The key factors driving time charter revenue are the number of days that vessels are chartered out and the daily charter hire rates.

Time charter revenue decreased because of a decrease in the chartered vessel days, which decreased 230 days or 28.5% to 577 days for the three months ended September 30, 2008, as compared to 807 days for the same period in 2007. The decrease in time charter-out days is due mainly to the reduced number of vessels available for time charter-out caused by the increased use of our controlled vessels in our established voyage business. The decrease in time charter-out days was offset by an increase in the average charter hire rate, which increased $7,990 per day or 31.4% to $33,464 per day for the three months ended September 30, 2008 from $25,474 per day for the comparable period in 2007. The increase in the average charter hire rate per day is primarily due to the strength in the worldwide shipping market. Charter hire rates are set, to a significant degree, by the market and depend on the relationship between the demand for ocean freight transportation and the availability of appropriate vessels. In October 2008, we saw a significant downturn in the freight market due to worldwide economic turmoil, which we believe will have an impact on charter hire rates for next quarter and possibly beyond.

The number of vessels time chartered out, time charter days, average daily charter rates and daily time charter equivalent rates for the three months ended September 30, 2008 and 2007 are as follows:

                                            Three Months Ended September 30,
                                               2008                  2007

Number of vessels (1)                                   6                     9
Time Charter days (2)                                 577                   807
Daily charter hire rates (3)              $        33,464       $        25,474
Daily time charter equivalent rates (4)   $        32,206       $        24,656

(1) Weighted average number of vessels chartered out.
(2) Number of days the vessels earned charter hire.
(3) Weighted average charter hire rates.
(4) Time Charter Equivalent or "TCE" rates for vessels that are time chartered out, are defined as time charter revenue during the period reduced by commissions divided by the number of available time charter days during the period. Commissions for vessels that are time chartered out for the three months ended September 30, 2008 and September 30, 2007 were $0.7 million and $0.7 million, respectively. No deduction is made for vessel or general and administrative expenses. TCE is an industry standard for measuring and analyzing fluctuations between financial periods and as a method of equating TCE revenue generated from a voyage charter to time charter revenue. No voyage expenses are deducted because they are not applicable.

Voyage expense

Voyage expense consists of costs attributable to specific voyages. The number of voyage days is a significant determinant of voyage expense, which consists of fuel costs, commissions, port call, stevedoring and miscellaneous voyage expense. The following table shows the change in the number of voyage days for the three months ended September, 2008 as compared to the same period in 2007:

                            Three Months Ended
                               September 30,              Increase (Decrease)
                           2008            2007          Days         Percentage

Freight voyage days           3,296           2,157         1,139             52.8
Time charter out days           577             807          (230 )          (28.5 )
Total voyage days             3,873           2,964           909             30.7

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                                     Three Months Ended                              Three Months Ended
                                     September 30, 2008                              September 30, 2007                                       Increase (Decrease)
                                          As a % of                                       As a % of
                                            Voyage         As a %                           Voyage         As a %                          As a % of       As a % of
                         In Thousands      Expense       of Revenue      In Thousands      Expense       of Revenue      In Thousands    2007 Expense       Revenue

Fuel expense            $       28,297           53.6            15.4   $       10,689           46.7            11.7   $       17,608           164.7             3.7
Commission expense               9,111           17.2             5.0            3,957           17.2             4.3            5,154           130.3             0.7
Port call expense                7,694           14.5             4.2            4,732           20.6             5.2            2,962            62.6            (1.0 )
Stevedore and other
cargo-related expense            4,813            9.1             2.6            2,728           11.9             3.0            2,085            76.4            (0.4 )
Miscellaneous voyage
expense                          2,967            5.6             1.6              836            3.6             0.9            2,131           254.9             0.7
Voyage expense          $       52,882          100.0            28.8   $       22,942          100.0            25.1   $       29,940           130.5             3.7

Voyage expenses increased to $52.9 million representing 28.8% of total revenue for the three months ended September 30, 2008 as compared to the $22.9 million and 25.1% of total revenue for the same period in 2007. The increase is principally attributable to an increase in fuel, commission and miscellaneous expense.

The $17.6 million increase in fuel expense was due to an increase in the average price per metric ton ("MT"), and an increase in fuel consumption. For the three months ended September 30, 2008, the average price per MT increased to $664 per MT as compared to $416 per MT for the same period in 2007. Consumption increased for the three months ended September 30, 2008 to 42,653 MT from 25,719 MT for . . .