Everything I have configured properly. Never mind, we have found it the reason for the issue. When we installed the SQL Cluster on the first node, we have changed the default path of the client tools to a different location as per our standards. Then when we added another node to the cluster, the client tools were installed to the default location on that node. This is the known issue as per Microsoft (
http://connect.microsoft.com/SQLServer/feedback/details/387694/client-tools-when-adding-node-to-a-cluster-install-to-the-wrong-location). When we run the logshipping jobs, it uses SqlLogShip.exe from the <client tools path>\100\Tools\Binn folder. As the client tools are on the different locations on these two nodes, when we failover the cluster, it was unable to find the location of SQLLogShip.exe but not the location for storing/copying/restoring the log files.