With a spearman for instance, if you chose to upgrade him to a Pikeman, the spearman should be replaced with a pikeman immediately, but will count as having already moved. So a fortified spearman will be an unfortified pikeman until the next turn when you can fortify him.
As for what happened to your ships... I have no idea... (They didn't turn into transports did they? I can't remember the upgrade path off-hand)