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Article by DailyStocks_admin    (12-15-08 08:05 AM)

TBS International Ltd. CEO JOSEPH E ROYCE bought 50000 shares on 12-08-2008 at $5.81

BUSINESS OVERVIEW

A. Overview

We are an ocean transportation services company that offers worldwide shipping solutions to a diverse client base of industrial shippers. We offer liner, parcel, bulk and charter services supported by a fleet of multipurpose tweendeckers and handysize and handymax bulk carriers. Over the past 15 years, we have developed our franchise around key trade routes between Latin America and Japan, South Korea and China, as well as ports in North America, Africa, the Caribbean, the Mediterranean and the Middle East. In addition to providing frequent, regularly scheduled voyages within our shipping network, we offer additional services such as cargo scheduling, loading and discharge that offer a fully integrated shipping solution to our customers. As of December 31, 2007, our controlled fleet totaled 36 vessels, including 34 ships that we own and two that we charter-in with an option to purchase. At December 31, 2007 we had entered into Memoranda of Agreement (“MOA”) to purchase three multipurpose tweendeckers and three bulk carriers that are scheduled to deliver to us in the first quarter of 2008. In addition, on February 19, 2008, we entered into an MOA for another bulk carrier. After delivery in 2008 of all the vessels that we have currently contracted for, our fleet will total 43 vessels. Total assets at December 31, 2007, and 2006 was $559.1 million and $403.1 million, respectively. For the year ended December 31, 2007, we carried 6.6 million revenue tons of cargo, operated 276 voyages and generated total revenue and net income of $355.6 million and $98.2 million, respectively. For the year ended December 31, 2006, we carried 4.4 million revenue tons of cargo, operated 226 voyages and generated total revenue and net income of $253.6 million and $39.1 million, respectively. For the year ended December 31, 2005, we carried 3.2 million revenue tons of cargo, operated 198 voyages and generated total revenue and net income of $248.0 million and $55.7 million, respectively.

We target niche markets, which include trade routes, ports and cargo not efficiently served by container and large dry bulk vessel operators. In order to effectively serve these markets, we offer regularly scheduled voyages using our fleet of multipurpose tweendeckers and handysize and handymax dry bulk carriers. Tweendeck vessels are differentiated by their retractable decks that can create separate holds, facilitating the transportation of non-containerized cargoes. Our vessels are able to navigate and service many ports with restrictions on vessel size and transport the many types of cargo that cannot be carried efficiently by container or large dry bulk carriers. The flexibility of our fleet allows us to carry a wide range of cargo, including steel products, metal concentrates, fertilizer, salt, sugar, grain, chemicals, industrial goods, aggregates and general cargo.

As part of our comprehensive ocean transportation service offering, we provide portside and inland logistics, related support services and solutions for challenging cargoes. To provide these services, we employ a professional staff of approximately 130 employees at December 31, 2007, with extensive experience and diverse backgrounds. In addition, our affiliate, TBS Commercial Group Ltd. ("TBS Commercial Group"), has fully staffed agencies and representative offices on five continents, with local teams of commercial agents and port captains who meet regularly with customers to tailor solutions to their logistics needs. We believe this full-service approach to shipping provides a superior level of service that has resulted in the development of long-term relationships with our customers.

Our customers rely on our regular service as an integral part of their supply chain, and many of these relationships have been established for over ten years. We serve approximately 300 customers in 15 countries. We have developed long-term relationships with established and well-respected industrial shippers in diverse markets including mining, steel manufacturing, trading, heavy industry, industrial equipment and construction. We believe our business model allows us to respond rapidly to our customers’ changing demands and short delivery windows, increasing the value of our services to them as we enable them to schedule production and distribution.

Our Competitive Strengths

Trade Routes and Ports of Call

We currently operate our vessels on six trade routes. We commenced operations in 1993, sailing between East Asia and the West Coast of South America. In 1995, we expanded our routes by adding sailings between the East and West Coasts of South America. In 2002, we began offering cargo service between North America and the East and West Coasts of South America and further expanded our routes by offering service from Brazil to West Africa and within the Middle East. During the third quarter of 2007 we began cargo service between the East Coast of South America and the Mediterranean.

We have taken a conservative approach to building our liner and parcel cargo service network. The initial sailings on each route typically are based on the requirements of a major customer. After regular sailings are established, we notify other potential customers of the service so their cargoes may be transported as well. As demand increases, we evaluate committing additional resources to serve the route, either by purchasing or chartering-in additional vessels. We plan the loading and stowage of cargo on each sailing to maximize our ability to add cargo as vessels call in selected ports to discharge cargo, increasing our utilization rate and maximizing revenue per sailing.

TBS Pacific Eastbound Liner Service operates routes from East Asia to the West, North, and East Coasts of South America. The service commenced operations in 1993 and currently provides on average two sailings per month. This service has regular sailing dates from ports in Japan, South Korea, and China. One vessel calls at ports in Colombia, Ecuador, Peru and Chile, and another sails through the Panama Canal to call at ports in Venezuela and the Caribbean basin. This service typically carries steel products, project cargo and general cargo.

TBS Pacific Westbound Parcel Service originates in Peru or Chile and generally carries parcels of minerals, metal concentrate, and fertilizers to East Asia. The service currently operates at least two sailings per month.

TBS Latin America Northbound Parcel Service commenced operations in 1995 and sails monthly from ports in Brazil to Colombia, Venezuela and the Caribbean basin. In addition, we provide sailings to ports on the West Coast of South America. The service is flexible with respect to types of cargoes, and typically carries mixed steel products, project cargo and general cargo. On occasion, cargoes on this service are supplemented in the course of a sailing, as discharged cargo is replaced by additional cargo along the route. As a result, this service requires particular consideration and monitoring of cargo organization and vessel scheduling, and benefits from our port captains' experienced oversight of the loading and unloading of cargoes.

TBS Latin America Southbound Parcel Service commenced operations in 2007 and sails monthly from ports in Colombia and Venezuela to Brazil and Argentina. The service generally carries coal and petroleum coke.

TBS North America Service commenced operations in 1996, sailing between North America and South America. In 2002, we began operating sailings on demand from the East Coast of the United States to the Caribbean basin, Brazil, and Argentina carrying fertilizer, and agricultural products.

TBS Middle East Carriers offers bulk service within the Middle East region with service from the United Arab Emirates to ports in Qatar and Kuwait. The service was suspended in September 2004 and resumed in January 2006.

TBS Mediterranean Service offers parcel and bulk service to the East Coast of South America and the Mediterranean. TBS Mediterranean Service commenced operations in 2007 and transports cargoes of steel products, project cargo and general cargo from Brazil and Argentina to ports in the Mediterranean.

TBS Ocean Carriers offers shipping solutions worldwide on a customer-by-customer basis. Services include transporting bulk sugar and salt from Brazil to the West Coast of Africa.

Our liner, parcel and bulk services primarily carry steel products, salt, sugar, grain, fertilizers, chemicals, metal concentrates, aggregates and general cargo.



Steel products include specialty and carbon steel coils, steel pipe and structural steel used in the infrastructure development, construction, oil and gas transmission and automotive and appliance manufacturing industries.



Fertilizers include ammonium sulfate shipped in bulk for use in commercial agriculture.



Metal concentrates include copper, zinc, silver and other metals generally shipped in small break-bulk lots from 1,000 to 10,000 metric ton parcels that are processed at their destinations by smelters into purer forms.



General cargo includes industrial machinery, spare parts, oil well supplies, trailers, industrial tanks, project cargo and other commercial goods used in industrial applications.

In addition to our liner, parcel and bulk services on the trade routes described above, we offer shipping solutions worldwide on a customer-by-customer basis, primarily by time chartering-out vessels. Generally, we time charter vessels out on a long-term basis to customers seeking vessel tonnage and on a short-term basis to reposition a vessel or to take advantage of favorable charter hire rates through TBS Ocean Carriers; however, any of our services may time charter a vessel to meet customer needs. A time charter is a contractual arrangement under which a shipowner is paid for the use of a vessel on a per day basis for a fixed period of time. The shipowner is responsible for providing the crew and paying vessel operating expenses while the charterer is responsible for paying the voyage expenses. At December 31, 2007, the following 12 vessels of our controlled and owned fleet were time chartered out under charters expiring within one year: Navajo Princess , Inca Maiden , Ainu Princess, Kiowa Princess, Taino Maiden, Wichita Belle, Chesapeake Belle, Maori Maiden, Nyack Princess, Shinnecock Belle, Sioux Maiden and Yakima Princess . The Navajo Princess and Inca Maiden are chartered-out until September and July 2008, respectively. These charters, which are renewable every six months have been in effect with the same customer since January 2004 and November 2003, respectively.

B. Our Business Strategy

Our business strategy consists of providing reliable transportation services to leading industrial shippers over ocean trade routes. The key elements of our business strategy are:

Focus on Increasing Cargo Volumes on Our Key Routes . We intend to increase cargo volumes on our key Pacific and Latin American trade routes. In addition to our liner, parcel and general cargo services, we are establishing a third sailing from China and Korea carrying steel parcels to Mexico, Central and South America. By adding additional vessels and sailings to the markets we already serve, we believe we will be able to provide more regular service to our clients, which we expect will allow us to capture a larger share of their shipping needs, and win new clients. Our affiliate, TBS Commercial Group Ltd., (“TBS Commercial Group”) plans to increase the number of local commercial agents and port captains in order to expand our ability to serve additional customers.

Develop New Trade Routes . We intend to continue developing new trade routes, such as our Brazil-Nigeria route, and liner and parcel services, such as our Mediterranean service. Our agents and port captains work closely with our clients, as well as potential clients, to identify additional services that we can provide. We target routes that share the characteristics of our established routes and appear suited to our fleet and our full service approach. When developing new trade routes, we initially utilize chartered-in vessels and commit resources to acquire vessels for operation on those routes once we have determined that the economics of the route are favorable and sustainable.

Expand Our Fleet of Focused Vessel Types . We expect to acquire additional handysize and handymax bulk carriers in the secondhand market, subject to availability and market price considerations. We expect to expand our fleet of multipurpose tweendeckers primarily through our newbuilding program. These vessels are well suited for our business strategy, for the needs of our customers and for the growth opportunities that we have identified. As part of our fleet management, we regularly evaluate the suitability of our vessels in meeting our anticipated needs and the anticipated needs of our customers. During 2007, in connection with our expansion plans, we:


purchased and took delivery of four vessels;


sold two vessels;



entered into Memoranda of Agreement to purchase six vessels , which are expected to be delivered to us during the first quarter of 2008;




entered in a Memoranda of Agreement to purchase one vessel, which is expected to be delivered in the second quarter of 2008, and




entered into ship building contracts with a Chinese shipyard to build six newly designed multipurpose tweendeck vessels. These 34,000 dwt vessels are a new larger class of multipurpose tweendecker and their addition to our fleet will be a significant milestone in the implementation of our business plan to modernize and expand our tweendecker fleet. The ships were designed by a TBS team drawn from all phases of our operations specifically to optimize our efficient cargo transportation in our trade lanes, support the requirements of our loyal customer base and enhance the growth of our business.

C. Fleet Overview

Our controlled fleet at December 31, 2007, consisted of 36 vessels and is comprised of multipurpose tweendeckers, handysize and handymax bulk carriers. All vessels are dual flagged in Panama and the Philippines.

(1)

These vessels are multipurpose tweendeckers with the ability to carry wheeled cargo such as automobiles, tractors or trailers. The vessel allows cargo to be "rolled on" and "rolled off" in addition to allowing cargo to be "lifted-on" and "lifted-off".

(2)

On January 30, 2007, International's wholly owned subsidiaries Fairfax Shipping Corp. ("Fairfax") and Beekman Shipping Corp. ("Beekman") each sold and leased back a vessel pursuant to a sale-leaseback arrangement. Fairfax sold the vessel Seminole Princess to Adirondack Shipping LLC ("Adirondack") for $23.0 million, and Beekman sold the vessel Laguna Bell e to Rushmore Shipping LLC ("Rushmore") for $22.0 million each pursuant to a Memoranda of Agreement. Fairfax had taken delivery of the vessel Seminole Maiden (formerly the Clipper Flamingo ) for $23.1 million on November 10, 2006. Beekman had taken delivery of the vessel Laguna Belle (formerly the Clipper Frontier ) for $22.0 million on November 15, 2006. Under the sale-leaseback arrangement, Fairfax entered into a seven-year bareboat charter with Adirondack and Beekman entered into a seven-year bareboat charter with Rushmore for their respective vessels. We used the proceeds from the sale to repay advances under the revolving credit facility. During 2007, we installed retractable decks into three of the cargo holds in each vessel; accordingly, the vessels were reclassified from bulk carriers to multipurpose tweendeckers.

(3)

These vessels were chartered in under sale-lease back agreements, which were classified as capital leases until December 2007, when the purchase options were exercised.

(4)

At December 31, 2007, we had contracted for the purchase of six vessels under separate Memoranda of Agreement to acquire the Ypermachos (to be renamed Zuni Princess ), the African Sanderling (to be renamed Hopi Princess ), the Gebe Oldendorff (to be renamed Oneida Princess ), the Diasozousa (to be renamed Mohave Maiden ), Wedellsborg (to be renamed Ottawa Princess ), and the vessel Frijsenborg (to be renamed Caribe Maiden ).

Multipurpose Tweendeckers

Most of our multipurpose tweendecker vessels have retractable tweendecks that can convert a multipurpose tweendecker to a bulk carrier, and back again, depending on the cargo. Unlike container ships, which can carry only cargo that can be or has been pre-packaged into standard 20-foot or 40-foot containers, or bulk carriers that limit the ability to mix different cargoes in any one hold, multipurpose tweendeckers can be divided into multiple cargo compartments by a mezzanine deck, or tweendeck. The tweendeck permits the carriage of cargoes of differing sizes and shapes in the same or separate holds and permits greater flexibility in the stowage and carriage of cargo. Many of our vessels sailing eastbound from Asia will call at multiple Latin American ports to discharge cargo and load additional cargo for shipment to other ports.


MANAGEMENT DISCUSSION FROM LATEST 10K

General

The following is a discussion of our financial condition at December 31, 2007 and 2006 and our results of operations comparing the years ended December 31, 2007 and 2006 and years ended December 31, 2006 and 2005. You should read this section in conjunction with our consolidated financial statements including the related notes to those financial statements included elsewhere in this Annual 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 15 countries to over 300 customers through a network of affiliated service companies.

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, stevedore and other cargo-related expenses, fuel, and commission expenses.

Drydocking

Since December 31, 2004, our fleet has grown from 18 to 36 vessels. These vessels must be drydocked twice during a five -year cycle. Thus, our controlled fleet of 36 vessels at December 31, 2007, would result in 72 drydockings over five years or an average of 14 vessels per year. The vessels that we acquired in expanding our fleet were of varying ages and had differing drydock and survey positions; consequently, we experienced increased drydocking days in 2007 relative to prior years.

We strive to maintain and upgrade our vessels to the highest standards. The vessels in our fleet have an average age of 21 years; accordingly, we have decided to accelerate the timing of steel renewals and reinforcements on many of the vessels scheduled for drydocking in 2007 and 2008. We expect that these renewals and reinforcements would have been required in the next five to ten years.

In addition, we invested approximately $4.2 million to retrofit the Seminole Princess and Laguna Belle by installing tweendecks in three holds in each vessel. The retrofittings of the Seminole Princess and Laguna Belle were completed in July 2007 and October 2007, respectively, and gives us extra flexibility in employing these vessels in our business.

The number of drydocking days in 2007 include 246 days for the Biloxi Belle , Tayrona Princess and Apache Maiden . The Biloxi Belle required more work than initially anticipated and we experienced problems at the initial repair shipyard used to drydock the Tayrona Princess and Apache Maiden. Consequently, we needed to drydock the Tayrona Princess and Apache Maiden a second time at a different repair shipyard. The 2007 drydocking days also included extra days during the drydocking of the Seminole Princess and Laguna Belle for the installation of retractable decks in three of the cargo holds in each vessel, converting these ships from bulk carriers to tweendeckers. Total drydock days for the Seminole Princess and Laguna Belle were 149 days. Excluding the drydock days for these five vessels, which totaled 395 days, dry dock for the remaining 16 vessels was 649 days.

We estimate that vessel drydockings that require less than 75 metric tons of steel renewal will take from 25 to 30 days and that vessel drydockings that require 100 to 500 metric tons of steel renewal will take from 40 to 65 days. Our estimates are based on current and anticipated congestion in the Chinese repair shipyards, which could be adversely affected by any unanticipated weather or congestion in the shipyard. Further, our 2008 drydock schedule is subject to changes 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 in our principal services transporting customers' cargo, 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 total final voyage revenue and expenses using the ratio of voyage days completed through period end to total voyage days. The impact of recognizing voyage expenses ratably over the length of each voyage is not materially different from the method of recognizing such costs as incurred in accordance with EITF Issue 91-9, method 5, on both a quarterly and annual basis. 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. Vessel operating expenses for both voyage and time charters are expensed as incurred.



Voyage revenue consists of freight charges paid to our subsidiaries for the transport of customers' cargo. The key factors driving voyage revenue are the number of vessels in the fleet, freight voyage days, revenue tons and the freight rates.



Time charter revenue consists of a negotiated daily hire rate for the duration of a charter. The key factors driving time charter revenue are the number of days 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, charter hire fees we pay to owners for use of their vessels and space charters (relets). The costs are paid by our subsidiaries.

Depreciation and amortization expense is computed for vessels and vessel improvements on the remaining useful life of each vessel, which is estimated as the period from the date we put the vessel into service to the date 30 years from the time that the vessel was initially delivered by the shipyard. Drydock costs are amortized on a straight-line basis over the period through the date of the next drydocking which is typically 30 months. Other fixed assets, consisting principally of computer hardware, software and office equipment are depreciated on a straight-line basis using useful lives of from three to seven years. Grabs are depreciated on a straight-line basis using useful lives of ten years. Vessel leasehold improvements, which are included with vessel improvements and other equipment, are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease.



Management fees The Company uses two subsidiary management companies to perform all its operational functions. Roymar provides technical ship management (obtaining crews, coordinating maintenance and repairs, drydocking, etc.) and receives a monthly, per vessel, management fee of $12,029. TBS Shipping Services provides operational management (arranging insurance, claims processing, general administrative services and port agent services) and commercial agency services. A monthly, per vessel management fee of $8,447 is paid for operational management services and a commission of approximately 2.5% of revenue is paid for commercial agency services. Management fees paid to Roymar and TBS Shipping Services and commissions paid to TBS Shipping Services are fixed under agreements that originally were negotiated during our Chapter 11 proceeding, which we emerged from in February 2001. After June 2005, when we purchased all the stock of TBS Shipping Services and Roymar, management fees and intercompany commissions have been eliminated in consolidation.


Commissions on freight and port agency fees are paid to TBS Commercial Group, which is a company that is owned by our principal shareholders. Management fees and commissions paid to TBS Commercial Group are fixed under agreements that originally were negotiated during our Chapter 11 proceeding with representatives of the holders of our then outstanding First Preferred Ship Mortgage Notes and were approved by our board of directors. Renewal of the current management agreements with TBS Commercial Group and approval of any new management agreements or amendments to the current management agreements with TBS Commercial Group are subject to approval by the compensation committee of our board of directors. The compensation committee of our board of directors approved, effective October 1, 2007, additional commissions of 1.25% of freight revenue for commercial agency services provided by subsidiaries of TBS Commercial Group and an increase of approximately 33 1/3% in port agency fees for agency services provided by most subsidiaries of TBS Commercial Group and Beacon. A higher increase was approved for the Brazilian and Colombian agents to reflect the greater currency appreciation that occurred in those countries.

Lack of Historical Operating Data for Vessels Before their Acquisition

Consistent with shipping industry practices, there is no historical financial due diligence process when we acquire vessels other than the inspection of the physical condition of the vessels and examinations of classification society records. Accordingly, we do not obtain the historical operating data for the vessels from the sellers because that information is not material to our decision to make acquisitions, nor do we believe it would be helpful to potential investors in our common shares in assessing our business or profitability.

Most vessels are sold under a standardized agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel's classification society records. The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel and does not provide for financial information or historical results for the vessel to be made available to the buyer. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the technical management agreement between the seller's technical manager and the seller is automatically terminated and the vessel's trading certificates are revoked by its flag state following a change in ownership.

Consistent with shipping industry practice, we treat the acquisition of a vessel, whether acquired with or without charter, as the acquisition of an asset rather than a business. Due to the differences between the prior owners of these vessels and the Company with respect to the routes we operate, the shippers and consignees we serve, the cargoes we carry, the freight rates and charter hire rates we charge and the costs we incur in operating our vessels, we believe that our operating results will be significantly different from the operating results of the vessels while owned by the prior owners.

The Financial Accounting Standards Board issued Emerging Issues Task Force (EITF) 98-3 states that "for a transferred set of activities and assets to be a business, it must contain all of the inputs and processes necessary for it to continue to conduct normal operations after the transferred set is separated from the transferor, which includes the ability to sustain a revenue stream by providing its output to customers." The purchase of a vessel alone cannot operate or generate revenue or constitute a business operation without the significant inputs and processes that we provide, as described below:



We provide our own captains, senior officers and crew to the vessels.


The vessels are managed by our subsidiary Roymar. All of the functions of vessel management, from technical ship management to crewing, vessel maintenance and drydocking, are conducted by Roymar, in a manner different from the prior manager, according to our exacting standards.


The necessary commercial activities - maintaining customer relationships, providing local teams of commercial agents and port captains, offering transportation management skills and logistics solutions -- are provided by our subsidiary TBS Shipping Services and our affiliate TBS Commercial Group in a manner different from the former owners.


The vessels will operate under our trade name and carry our distinctive Native Peoples’ naming convention.

The revenue-producing activity of the vessels we purchase will be generated from carrying cargoes for our customers on the routes we serve. The vessels we purchase are operated by different parties than their former owners, serve different customers, carry different cargoes, charge different rates, cover different routes and, in all respects engage in a different business with different revenues, costs and operating margins.

In short, all of the most important elements of operating the assets -- in fact, all of the elements of the business of ocean transportation other than the vessels themselves -- are not being purchased with the vessels but will depend on our skill and expertise.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

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.

General

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.



During the third quarter of 2008, four vessels that entered into drydock during the second quarter of 2008 continued their drydockings for 112 days and five vessels entered drydock for a total of 117 days.

(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.

Results of Operations

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

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.

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.

CONF CALL

Fred Lepere

Good morning and thank you for joining TBS International Limited’s quarterly conference call. The purpose of today’s call is to discuss the results of TBS’s third quarter and nine months ended September 30, 2008. Yesterday, we issued a press release after the close of the stock market in New York with financial and operational information for the third quarter and nine months of 2008.

If you have not received this release, you may log on to our website at www.tbsship.com and navigate to the investor relations page or you can call Capital Link at 212-661-7566. We will also post the transcript of this call on our website once it has been prepared. Our remarks today will be followed by a question-and-answer session.

For those of you, who want to follow our slide presentation please go to the TBS website, which is www.tbsship.com and click on the webcast link, note that the slides are user controlled. Those of you who want to follow the webcast please click on the arrow at the bottom of the webcast screen to make the slides turn. Also, please note that the webcast will be archived on our website.

Now please turn to slide one. This slide refers to forward-looking statements. During the course of this conference call, we may make forward-looking statements. Such statements are just predictions and involve risks and uncertainties such that actual results may differ materially. I’d like to refer you to our filings with the Securities and Exchange Commission, in particular our quarterly reports on Form 10-Q and our annual reports on Form 10-K.

These documents contain and identify important factors that could cause the actual results to differ materially from those expressed in these forward-looking statements and with that, I’d like to introduce Joseph Royce, our Chairman, CEO and President.

Joseph Royce

Good morning everyone, and welcome to TBS International’s conference call for the results of the third quarter and nine months ended September 30, 2008. We will begin our presentation with slide number two, TBS at a Glance.

The core of the TBS business model emphasizes our TBS Five Star service; Ocean Transportation, Logistics, Portside Services, Operations and Strategic Planning. It is through the professionalism and dedication of the approximately 300 worldwide employees of TBS, and our affiliated agencies who deliver a TBS Five Star service that we cement customer relationships.

This foundation of direct customer relationships sets our company apart from the traditional dry bulk cargo companies, who focus on chartering their vessels to other companies.

As this slide indicates, TBS has a track record of growth in terms of total revenue and tons of cargo shipped. Now, times have changed and we are taking a conservative approach. We are evaluating our entire cost matrix to identify potential savings.

Now, let’s look at slide number three, the TBS Five Star Service. Service is the essence of our business. Our goal is to build long-term relationships. Our customers rely on us to be their shipping arm in the markets we serve. We add value by offering our customers a menu of services, including Ocean Transportation, Operations, Logistics, Port Services and Strategic Planning.

Our Five Star Service is a strong barrier of entry. We are a critical component in the global supply chain of our customers who rely on us for reliable and efficient transportation solutions.

Now, I’d like to show you some examples of our Five Star Service in action. As you can see, this is a complex logistical operation that requires a high level of cargo expertise. Our 18 full time port captains around the world are constantly working with the shippers and receivers to coordinate cargo movements within the ports.

As you can see in these slides we have moved cargoes, heavy lift pieces anywhere from 150 tons up to 300 tons. We also use our parcel services, where we supply different spare parts and materials for our customers throughout the markets in South America and finally, on page six you can see the different types of projects and logistics cargoes that we move.

Now I’d like to turn to slide seven, our third quarter and nine months 2008 overview. For the third quarter and nine months of 2008, we are pleased to have achieved very strong results in terms of revenue, EBITDA, net income and earnings per share. We will elaborate in more detail shortly.

As you can also see, we are continuing with our accelerated drydocking and maintenance program and have drydocked nine vessels, with 229 drydocking days in the third quarter 2008. Now, let’s look at slide eight, where we talk about TBS net income as compared to the Baltic Dry Index. As you can see on this slide, we have now entered times of a global economic slowdown and this has affected the dry bulk shipping industry as well.

The stagnation caused due to the credit crisis has temporarily disrupted normal trade and cargo movements. We usually trail the Baltic Dry Index in both directions. We do not achieve spot market highs or lows, because of our customer relationships and repeat business.

We are currently affected by the credit crisis and lack of cargoes, which will negatively impact EBITDA and net income. In this environment, our loyal and diverse customer base, our diverse trade lanes with a strong franchise position in our core markets, as well as our strong financial condition help us to position the company to take advantage of opportunities that may present themselves.

We are taking a cautious approach, and in this respect have delayed our program to build additional Roymar Class Multipurpose Tweendeckers. Our existing newbuilding program of six Roymar Class tweendeckers is progressing and we have in place fixed term financing with The Royal Bank of Scotland for all remaining installments to the shipyard, including the delivery of the vessels.

We would also like to mention here that we own our vessels, deal directly with our customer base and presently have no vessels on long-term time charter. Also, we have never participated in freight forward agreements.

Now, I’d like to turn the floor over to Fred Lepere, our Executive Vice President and Chief Financial Officer.

Fred Lepere

We should all now be on slide number nine, third quarter operating and financial highlights. As a result of our Five Star service, our third quarter 2008 operating and financial highlights improved significantly as compared to the third quarter of 2007.

For the third quarter ended September 30, 2008, total revenues were $183.3 million, an increase of 100% over the same period in 2007. Voyage revenues in the third quarter of 2008 were $161.4 million, an increase of 128% from the $70.9 million during the same period in 2007. We’d like to make a note here that we have intentionally separated the logistics revenue of our business from our other revenues.

TBS Logistics Incorporated, which is a wholly-owned cargo and transport management subsidiary, started during the fourth quarter of 2007, to focus on project transportation logistics, a growth area of strategic interest for TBS.

Now, the time charter revenues in the third quarter of 2008 decreased by $1.3 million or 6%, to $19.3 million from $20.6 million for the three months ended September 30, 2007. This reflects the increased number of our vessels utilized in our core voyage business.

Our net income was $59.1 million, an increase of 119% over the same period in 2007. Earnings per share on a diluted basis for the third quarter of 2008 were $1.96, an increase of 104% from the earnings per share of $0.96 for the third quarter last year.

We also experienced improved margins in the third quarter of 2008. EBITDA, which is a non-GAAP measure, was $83.9 million for the third quarter of 2008, an increase of 118% over the same period in 2007. I will provide a reconciliation of EBITDA in another slide.

Please now turn to slide 10. This slide demonstrates the revenue metrics of our business for the third quarter of 2008. We begin with our voyage revenue metrics, on the top of the slide.

During the third quarter of 2008, we operated 36 vessels in our freight voyage business, and had 3,296 freight voyage days as compared to 23 vessels and 2,157 freight voyage days in the third quarter of 2007, reflecting the growth of our business.

Our average daily voyage time charter equivalent was $33,143 per day in the third quarter of 2008, an increase of 47% from the $22,527 per day during the same period in 2007 and an increase of 6% from the $31,212 per day during the second quarter of 2008.

During the third quarter of 2008, we had a considerable increase in tons of cargo shipped and freight rates per ton. The tons of cargo shipped excluding aggregates, accounted for slightly more than half of the significant increase in total tons of cargo shipped during the third quarter.

We now turn to our time charter revenue metrics on the same slide. Time charter days in the third quarter 2008 decreased to 577 days from 807 days, reflecting the increased number of vessels utilized in our core voyage business. Our average daily time charter equivalent was $32,206 per day in the third quarter of 2008, an increase of 31% from the $24,656 per day during the same period in 2007.

Slides 11 and 12 depict our operating and financial highlights, as well as key metrics for the nine months of 2008. These slides are self-explanatory and the information is presented in more detail in our third quarter and nine months 2008 earnings press release we issued yesterday, as well as in our 10-Q for the period. I’ll answer any questions you may have during the question-and-answer session of the conference call.

Please now turn to slide 13. This slide provides the highlights of our consolidated balance sheet. As of September 30, 2008 our net debt to capitalization ratio stood at 29.9%, which is moderate for industry standards and affords a significant flexibility for further growth.

Now, please turn to slide 14. This slide shows our EBITDA reconciliation. EBITDA is a non-GAAP financial measure. For the three months ended September 30, 2008 we realized net income of $59.1 million, with EBITDA of $83.9 million. While, in the three months ended September 30, 2007 we realized net income of $27 million, with EBITDA of $38.5 million.

During the nine months of this year, net income was $157.2 million, with EBITDA of $221 million, as compared to net income of $63.1 million, with EBITDA of $96.2 million during the same period last year.

We now turn to slide 15. This slide shows the reconciliation of net income and earnings per share before nonrecurring items. We have now reached the end of our presentation. The slides and the appendix provide some more information on our business model, our trade routes, our fleet and our global network.

Please take a look at them at your convenience. I thank you for your interest and support of our company and I’d like to open the conference call to questions from our investors.

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