At 17.57 hours on 25 Jan 1942 the Culebra (Master George Douglas Bonner), dispersed from convoy ON-53 on 19 January, was shelled by U-123 east-northeast of Bermuda. They fought a gun duel on a distance of about 600 metres until the stern gun of the freighter was put out of action by a direct hit. The U-boat recieved five hits which did not penetrate the pressure hull. While the crew abandoned ship in the lifeboats, the Germans repaired the firing pin of the 20mm AA gun which malfunctioned early in the combat and fired a single shot to test it. The round detonated prematurely in the barrel, apparently due to a defect in manufacture and wounded two crew members, the war photographer Toelle badly.

After taking care of the injured men, Hardegen questioned the first officer of Culebra and after being told that there is water in some of the lifeboats and they only had one holed bucket, he provided them several buckets, provisions for a few days, a knife to open the canned food and the course to the Bermudas. The U-boat then went back to the ship to fire a few more holes into the waterline until she sank by the stern. However, the lifeboats were never found, the master, 38 crew members and six gunners were lost.