14 years after the events of TUGS, the Bigg City port has become a financial wreck as the end of the Great Depression approaches. Ten Cents, Sunshine and Emily have had trouble working everywhere. Most of their work is demolishing buildings, including the original spot where the Garbage Co. was (Jack the Grappler was moved to a bigger one, that was full of the stuff, along with the Garbage Master). Lucky's Yard was closed, but as the final few weeks of the Great Depression approached, it had reopened.
The tugs are all in bad shape. Top Hat has had to sell his old hat, but recently bought it back. Big Mac has been working mostly with barges. Hercules has been reduced to harbor work since he is expensive to send out into the harbor, and Warrior only works to mark buoys. Ten Cents, Emily and Sunshine do all the demolishing, but are happy to find out that the Great Depression is almost over. Ten Cents and Sunshine never knew a time like this in the Bigg City Port. Emily, on the other hand, remembers a time in New York when World War One began.
In 1916, America was shaken by the loss of the ocean liner Lusitania, and has entered World War One. Around this time, Emily was built as an army tug, to work on the Hudson River taking troops to West Point. Everyone is worried about something terrible that might happen.
In October of 1916, Emily is sent to patrol the waters of West Point. With her is a decoy barge. As she crosses a bend, an explosion sends her flying backwards as the barge blows up.