Forward-Looking Statements

Certain statements made by us or on our behalf in this report or elsewhere that are not based on historical facts are intended to be "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on beliefs and assumptions about future events that are inherently unpredictable and are therefore subject to significant known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from the anticipated results expressed or implied by such forward-looking statements. In this report, the terms "we," "us," "our," and "the Company" refer to International Shipholding Corporation and its subsidiaries.

Such statements include, without limitation, statements regarding (1) estimated fair values of capital assets, the recoverability of the cost of those assets, the estimated future cash flows attributable to those assets, and the appropriate discounts to be applied in determining the net present values of those estimated cash flows; (2) estimated scrap values of assets; (3) estimated proceeds from sale of assets and the anticipated cost of constructing or purchasing new or existing vessels; (4) estimated fair values of financial instruments, such as interest rate, commodity and currency swap agreements; (5) estimated losses under self-insurance arrangements, as well as estimated gains or losses on certain contracts, trade routes, lines of business or asset dispositions; (6) estimated losses attributable to asbestos claims; (7) estimated obligations, and the timing thereof, to the U.S. Customs Service relating to foreign repair work; (8) the adequacy of our capital resources and the availability of additional capital resources on commercially acceptable terms; (9) our ability to remain in compliance with our debt covenants; (10) anticipated trends in government sponsored cargoes; (11) our ability to effectively service our debt; (12) financing opportunities and sources (including the impact of financings on our financial position, financial performance or credit ratings), (13) anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, acquisition and divestiture opportunities, business prospects, regulatory and competitive outlook, investment and expenditure plans, investment results, pricing plans, strategic alternatives, business strategies, and other similar statements of expectations or objectives, and (14) assumptions underlying any of the foregoing. Forward-looking statements may include the words "may," "will," "estimate," "project," "intend," "continue," "believe," "expect," "plan" or "anticipate" and other similar words.

Our forward-looking statements are based upon our judgment and assumptions as of the date such statements are made concerning future developments and events, many of which are outside of our control. These forward looking statements, and the assumptions upon which such statements are based, are inherently speculative and are subject to uncertainties that could cause our actual results to differ materially from such statements. Important factors that could cause our actual results to differ materially from our expectations may include, without limitation, our ability to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques; (ii) secure financing on satisfactory terms to repay existing debt or support operations, including to acquire, modify, or construct vessels if necessary to service the potential needs of current or future customers; (iii) obtain new contracts or renew existing contracts which would employ certain of our vessels or other assets upon the expiration of contracts currently in place, on favorable economic terms; (iv) manage the amount and rate of growth of our administrative and general expenses and costs associated with operating certain of our vessels;
(v) manage our growth in terms of implementing internal controls and information systems and hiring or retaining key personnel, among other things, and (vi) effectively handle our leverage by servicing and meeting the covenant requirements in each of our debt instruments, thereby avoiding any defaults under those instruments and avoiding cross defaults under others.

Other factors include (vii) changes in cargo, charter hire, fuel, and vessel utilization rates; (viii) the rate at which competitors add or scrap vessels, as well as demolition scrap prices and the availability of scrap facilities in the areas in which we operate; (ix) changes in interest rates which could increase or decrease the amount of interest we incur on borrowings with variable rates of interest, and the availability and cost of capital to us;
(x) the impact on our financial statements of nonrecurring accounting charges that may result from our ongoing evaluation of business strategies, asset valuations, and organizational structures; (xi) changes in accounting policies and practices adopted voluntarily or as required by accounting principles generally accepted in the United States; (xii) changes in laws and regulations such as those related to government assistance programs and tax rates; (xiii) the frequency and severity of claims against us, and unanticipated outcomes of current or possible future legal proceedings; (xiv) unplanned maintenance, drydocking and out-of-service days on our vessels, or other similar events giving rise to unanticipated capital or operating expenses; (xv) the ability of customers to fulfill obligations with us; (xvi) the performance of unconsolidated subsidiaries; (xvii); political events in the United States and abroad, including terrorism and piracy, and the U.S. military's response to those events; (xviii) election results, regulatory activities and the appropriation of funds by the U.S. Congress; (xix) unanticipated trends in operating expenses such as fuel and labor costs and our ability to recover these fuel costs through fuel surcharges; and (xx) other economic, competitive, governmental, and technological factors which may affect our operations.

You should be aware that new factors may emerge from time to time and it is not possible for us to identify all such factors nor can we predict the impact of each such factor on our business or the extent to which any one or more factors may cause actual results to differ from those reflected in any forward-looking statements. You are further cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this report. We undertake no obligation to update any of our forward-looking statements for any reason.

Executive Summary Overview of Third Quarter 2009

Overall Strategy

The company operates a diversified fleet of U.S. and International flag vessels that provide international and domestic maritime transportation services to commercial and governmental customers primarily under medium to long-term contracts. Our business strategy consists of identifying growth opportunities as market needs change and utilizing our extensive experience to meet those needs, and continuing to maintain a diverse portfolio of medium to long-term contracts under which we can provide our long-standing customers with quality transportation services.

Financial Discipline and Strong Balance Sheet

We continued to maintain a strong financial position at September 30, 2009.

††† Consolidated cash and cash equivalents of $51.2 million as of September 30, 2009.

††† Consistent operating cash flow due to fixed time-charter contracts.

††† Working capital of $62.9 million.

††† Payment of cash dividends of $0.50 per share for the quarter.

††† Long-term Debt to Equity Ratio of 44%.

Consolidated Financial Performance - Third Quarter 2009 vs. Third Quarter 2008

Overall earnings for the third quarter 2009 ($11.3M) remained strong and consistent when compared to the same period in 2008 ($11.3M) and the second quarter of 2009 ($10.7M). The carriage of increased supplemental cargo values on our United States flag Pure Car Truck Carriers helped sustain the results for the current period. Key components of the third quarter 2009 include:

††† Revenue growth of $7.9 million,

††† Decrease of $1.0 million in consolidated gross profit.

††† Administrative and general expenses remain flat.

††† Decrease in interest expense of $262,000 primarily due to lower principal balances.

††† Overall decrease in tax expense of $1.0 million.

††† Rail-Ferry continued to be negatively impacted due to the economy.

Segment Performance - Third Quarter 2009 vs. Third Quarter 2008

Time Charter Contracts
††† Slight decrease in gross profit from $14.4 million in the third quarter of 2008 to $13.7 million for the same period 2009.

? Fixed time-charter rate which provides consistent operating cash flow.

††† Non-cash write off of dry-dock expenses of $700,000

††† Continued increased supplemental cargo volumes.

Contract of Affreightment ("COA")
††† Increase of $1.2 million in gross profit, primarily due to additional cargo carried.

††† Guaranteed minimum tonnage for the contract year.

Rail-Ferry
? Decrease of $1.2 million in gross profit for the quarter due to significant drop in volume and reduced rates due to the current economic conditions.

                             RESULTS OF OPERATIONS

                      NINE MONTHS ENDED SEPTEMBER 30, 2009
              COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2008

                                    Time Charter                     Rail-Ferry
(All Amounts in Thousands)           Contracts           COA          Service          Other         Total
2009
Revenues from External Customers   $      251,299     $  14,229     $     21,890     $   2,738     $ 290,156
Voyage Expenses                           193,216        11,586           18,864         2,959       226,625
Vessel Depreciation                        11,175             -            4,298             8        15,481
Impairment Loss                             2,899             -                -             -         2,899
Gross Voyage Profit (Loss)                 44,009         2,643           (1,272 )        (229 )      45,151
2008
Revenues from External Customers   $      161,369     $  14,605     $     30,152     $   3,077     $ 209,203
Voyage Expenses                           124,712        13,505           24,772         1,168       164,157
Vessel Depreciation                        10,880             -            3,953             9        14,842
Gross Voyage Profit                        25,777         1,100            1,427         1,900        30,204

Gross voyage profit increased from $30.2 million in the first nine months of 2008 to $45.2 million in the first nine months of 2009. Revenues increased from $209.2 million in the first nine months of 2008 to $290.2 million in the first nine months of 2009. Voyage expenses increased from $164.2 million in the first nine months of 2008 to $226.6 million in the first nine months of 2009. The changes of revenue and expenses associated with each of our segments are discussed within the following analysis below.

Time Charter Contracts: The increase in this segment's gross voyage profit from $25.8 million in the first nine months of 2008 to $44.0 million in the first nine months of 2009 was primarily due to an increase in the carriage of supplemental cargoes on our U.S. flag Pure Car Truck Carriers. Offsetting this increase in gross voyage profit is an impairment charge of $2.9 million taken on one of our International flag container vessels. This impairment loss was the result of the early charter party contract termination on one of our International flag container vessel. The Company and the Charterer agreed to the early termination in exchange for an increase in charter hire on the other International flag container vessel remaining under charter. The vessel was sold in the third quarter and an additional loss of $129,000 was recorded.

In addition, one of our vessels used to service operations in Indonesia experienced a significant amount of non-operating time resulting from unscheduled repairs. This vessel was eventually removed from the service on April 16, 2009 and has been operating on a short-term charter assignment. The current short-term charter agreement terminates by mid-November of 2009. On October 16, 2009 we entered into a Memorandum of Agreement ("MOA") to sell the aforementioned vessel. We expect to record a loss on the sale of approximately $2.2 million in the fourth quarter of 2009.

Contracts of Affreightment: Gross voyage profit increased from $1.1 million in the first nine months of 2008 to $2.6 million in the first nine months of 2009 primarily due to additional cargo carried in 2009.

Rail-Ferry Service: Gross voyage profit decreased from $1.4 million in the first nine months of 2008 to a loss of $1.3 million in the first nine months of 2009. Revenues for this segment decreased from $30.2 million in the first nine months of 2008 to $21.2 million in the first nine months of 2009 due to a drop in volume and rates due to the current weak economic conditions.

Other: Gross profit decreased from a $1.9 million profit in the first nine months of 2008 to a $229,000 loss in the first nine months of 2009. This decrease was primarily due to foreign currency exchange losses related to our unconsolidated interest in an entity in Mexico, an exchange loss on the Yen denominated facility revaluation adjustment and 2007 adjusted earnings for Dry Bulk, which increased gross profit and were recorded in 2008.

Other Income and Expense

Administrative and general expenses increased from $15.3 million in the first nine months of 2008 to $16.4 million in the first nine months of 2009 primarily due to the expansion of our executive stock compensation program initiated in April 2008 and extraordinary consulting fees associated with an unaffiliated company's offer to purchase the company.

The following table shows the significant A&G components for the first nine months of 2009 and 2008 respectively.

(Amounts in Thousands)           Year to Date as of September 30,
        A&G Account                 2009                  2008           Variance

Wages & Benefits               $         7,623       $         7,426     $      197
Executive Stock Compensation             1,293                   431            862
Professional Services                    1,858                 2,061           (203 )
Office Building Expenses                   969                   846            123
Other                                    4,203                 4,578           (375 )
Consulting Fees *                          476                     -            476
TOTAL                          $        16,422       $        15,342     $    1,080

* Fees associated with unaffiliated company's offer to purchase the company.

Interest expense decreased from $5.4 million in the first nine months of 2008 to $4.4 million in the first nine months of 2009 primarily due to lower interest rates and principal balances.

Investment Loss/(Income) decreased from $612,000 of income in the first nine months of 2008 to a loss of $187,000 in the first nine months of 2009 due to an impairment charge of $757,000 related to certain investments which were determined to have other than temporary impairment. These unrealized losses primarily relate to overall weak conditions seen in the stock market over the past eighteen months.

Income Taxes

We recorded a benefit for income taxes of $2.4 million on our $24.0 million of income from continuing operations before income from unconsolidated entities in the first nine months of 2009, reflecting tax losses on operations taxed at the U.S. corporate statutory rate. For the first nine months of 2008, our benefit was $848,000 on our $8.6 million of income from continuing operations before income from unconsolidated entities. For further information on certain tax laws and elections, see our annual report on Form 10-K for the year ended December 31, 2008, including Note G to the financial statements. Our qualifying U.S. flag operations continue to be taxed under the "tonnage tax" laws.

Equity in Net Income of Unconsolidated Entities

Equity in net income of unconsolidated entities, net of taxes, decreased from $20.0 million in the first nine months of 2008 to $5.0 million in the same period of 2009. The results were driven by our 50% investment in Dry Bulk, a company which owns and operates two Cape-Size Bulk Carriers and one Panamax Bulk Carrier and which has two Handymax Bulk Carrier Newbuildings on order for delivery in 2012. Excluding the gain of $15.1 million on the sale of one of the Panamax Bulk Carriers in the second quarter of 2008, Dry Bulk's results were comparable from year to year.

                             RESULTS OF OPERATIONS

                     THREE MONTHS ENDED SEPTEMBER 30, 2009
             COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2008
                                    Time Charter                     Rail-Ferry
(All Amounts in Thousands)           Contracts           COA          Service          Other         Total
2009
Revenues from External Customers   $       78,709     $   5,382     $      7,384     $     786     $  92,261
Voyage Expenses                            61,297         3,877            5,962           546        71,682
Vessel Depreciation                         3,712             -            1,372             3         5,087
Gross Voyage Profit                        13,700         1,505               50           237        15,492
2008
Revenues from External Customers   $       67,395     $   4,745     $     11,015     $   1,194     $  84,349
Voyage Expenses                            49,587         4,478            8,563           519        63,147
Vessel Depreciation                         3,454             -            1,246             2         4,702
Gross Voyage Profit                        14,354           267            1,206           673        16,500

Gross voyage profit decreased from $16.5 million in the third quarter of 2008 to $15.5 million in the third quarter of 2009. Revenues increased from $84.3 million in the third quarter of 2008 to $92.3 million in the third quarter of 2009. Voyage expenses increased from $63.1 million in the third quarter of 2008 to $71.7 million in the third quarter of 2009. The changes of revenue and expenses associated with each of our segments are discussed within the following analysis below.

Time Charter Contracts: The decrease in this segment's gross voyage profit from $14.4 million in the third quarter of 2008 to $13.7 million in the third quarter of 2009 was primarily due to the acceleration of unamortized drydock charges and higher operating costs in the third quarter of 2009 and the favorable impact of settling loss of hire claims in the third quarter of 2008. Revenues increased for this segment from $67.4 million in the third quarter of 2008 to $78.7 million in the third quarter of 2009 as a result of increased supplemental cargo volumes on our United States flag Pure Car Truck Carriers.

In addition, one of our vessels used to service operations in Indonesia experienced a significant amount of non-operating time resulting from unscheduled repairs. This vessel was eventually removed from the service on April 16, 2009 and has been operating on a short-term charter assignment. The current short-term charter agreement terminates by mid-November of 2009. On October 16, 2009 we entered into a Memorandum of Agreement ("MOA") to sell the aforementioned vessel. We expect to record a loss on the sale of approximately $2.2 million in the fourth quarter of 2009.

Contracts of Affreightment: Gross voyage profit increased from $267,000 in the third quarter of 2008 to $1.5 million in the third quarter of 2009 primarily due to additional cargo carried in 2009..

Rail-Ferry Service: Gross voyage profit decreased from $1.2 million in the third quarter of 2008 to $50,000 in the third quarter of 2009. Revenues for this segment decreased from $11.1 million in the third quarter of 2008 to $7.4 million in the third quarter of 2009 due to a drop in volume and rates due to the current weak economic conditions.

Other: Gross profit decreased from $673,000 in the third quarter of 2008 to $237,000 in the third quarter of 2009. This decrease was due to a decline in Brokerage revenue in the third quarter of 2009 attributable to the weak economy.

Other Income and Expense

Administrative and general expenses remained essentially unchanged in the third
quarter of 2009 compared to the same quarter in 2009.
 The following table shows the significant A&G components for the third quarter
of 2009 and 2008 respectively.

(Amounts in Thousands)       Three Months Ended September 30,
        A&G Account                2009             2008       Variance

Wages & Benefits                  $     2,461      $     2,536      $ (75)
Executive Stock Compensation              541              284         257
Professional Services                     742              628         114
Office Building Expenses                  311              250          61
Other                                   1,427            1,739       (312)
TOTAL:                            $     5,482      $     5,437 $        45

Interest expense decreased from $1.8 million in the third quarter of 2008 to $1.5 million in the third quarter of 2009 primarily due lower interest rates and principal balances.

Investment Income decreased from $175,000 in the third quarter of 2008 to $145,000 in the third quarter of 2009 due to an impairment charge of $22,000 related to certain investments which were determined to have other than temporary impairment.

Income Taxes

We recorded a benefit for income taxes of $581,000 on our $8.5 million of income from continuing operations before income from unconsolidated entities in the third quarter of 2009, reflecting tax losses on operations taxed at the U.S. corporate statutory rate. For the third quarter of 2008, we recorded a provision of $470,000 on our $9.4 million income from continuing operations before income from unconsolidated entities. For further information on certain tax laws and elections, see our annual report on Form 10-K for the year ended December 31, 2008, including Note G to the financial statements. Our qualifying U.S. flag operations continue to be taxed under the "tonnage tax" laws.

Equity in Net Income of Unconsolidated Entities

Equity in net income of unconsolidated entities, net of taxes, was comparable in the third quarter of 2009 to the same period in 2008, with results of $2.2 million. The results were provided by our 50% investment in Dry Bulk, a company which owns and operates two Cape-Size Bulk Carriers and one Panamax Bulk Carrier and which has two Handymax Bulk Carrier Newbuildings on order for delivery in 2012.

The following discussion should be read in conjunction with the more detailed Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows included elsewhere herein as part of our Condensed Consolidated Financial Statements.

Our working capital (which we define as the difference between our total current assets and total current liabilities) increased from $50.5 million at December 31, 2008, to $62.9 million at September 30, 2009. This increase was due to an increase in supplemental cargo receivables and the issuance of a note receivable on the sale of two vessels used to service an Indonesian mining customer. Cash and cash equivalents decreased in the first nine months of 2009 by $638,000 to a total of $51.2 million, and marketable securities increased during this period to $13.6 million with the purchase of $10.5 million of short-term corporate bonds. The decrease in cash and cash equivalents was a result of cash provided by operating activities of $40.9 million, cash provided by financing activities of $12.2 million, offset by cash used by investing activities of $53.7 million. Total current liabilities of $98.7 million as of September 30, 2009 included current maturities of long-term debt of $63.1 million, of which approximately $49 million of debt was reclassed as current in the third quarter due to the maturity of the remaining 4.454 billion Yen (¥4,454,000,000) of an original five billion Yen (¥5,000,000,000) term loan in 2010. The vessel purchased with the loan in 2007 is leased out ("Time Chartered") under a three year agreement whose terms qualified as a direct financing lease, terminating in the same period in 2010. The unrealized income related to this lease has also been reclassified as current, having no net effect on working capital. The Charterer has the option to purchase the vessel upon expiration of the lease. In the event the Charterer elects not to exercise its option to purchase, we expect to be able to re-finance the balloon payment in the open market, or as another alternative, sell the vessel.

Operating activities generated a positive cash flow of $40.9 million after adjusting net income of $31.4 million for the first nine months of 2009 for non-cash provisions such as depreciation and amortization, $2.9 million impairment loss on one of our International flag container vessels, amortization of deferred charges, and distributions from unconsolidated entities, partially offset by a non-cash deduction of $5.0 million from the equity in net income of these unconsolidated entities, and deferred drydocking charges of $14.8 million.

Net cash used by investing activities of $53.7 million included capital improvements of $52.2 million and the purchase of short-term corporate bonds of $10.5 million, partially offset by proceeds from the sale of a vessel of $3.0 million and principal payments received under direct financing leases of $5.8 million. Included in these $52 million of capital improvements is $40.8 million for the purchase of the two vessels to be used in an Indonesian mining service, subsequently sold and financed to a third party. Noncash proceeds of $50.8 million on a note received as consideration on sale of the vessels generated a deferred gain of approximately $10.6 million. This gain will be recognized over the length of the note agreement.

Net cash provided by financing activities of $12.2 million included regularly scheduled debt payments of $9.8 million and cash dividends paid of $10.9 million, more than offset by proceeds from new debt of $33.0 million, including a $25.0 million loan relating to the purchase of the two vessels previously mentioned to be used in an Indonesian mining service.

In March 2008, we signed an agreement with Regions Bank to provide us with an unsecured revolving line of credit for $35 million. This facility replaced the prior secured revolving line of credit for the like amount. As of September 30, 2009, $6.4 million of the $35 million revolving credit facility, which expires in April of 2011, was pledged as collateral for letters of credit, and the remaining $28.6 million was available.

We entered into a financing agreement with Regions Bank on August 27, 2009 for a five year facility to finance up to $40.0 million for the purchase of additional vessels. With this financing, our unsecured revolving line of credit was reduced . . .