At 13.49 hours on 10 July 1943 the unescorted Alice F. Palmer (Master George Pederson) was struck by one of two torpedoes from U-177 on port side at the #5 hold. The explosion destroyed the stern, blew off the prop and rudder, flooded the engine room and the #5 hold, put the after gun out of action and broke the back of the ship. With the stern dropping at a 45° angle some of the complement of eight officers, 35 men and 25 armed guards (the ship was armed with one 3in and nine 20mm guns) abandoned ship in two lifeboats ten minutes after the attack. The order to abandon ship came about twenty minutes later and the remaining crew left in the other two lifeboats.
The U-boat surfaced and signaled the men to come alongside. After questioning the survivors for 20 minutes, U-177 took a position off the port side of the Alice F. Palmer and began shelling her with 14 incendiary and 85 high-explosive rounds. The burning ship slowly sank by the stern and disappeared at about 16.00 hours.

The four lifeboats became separated as they sailed to Madagascar. Three days later, a British Catalina aircraft picked up the occupants of the #3 boat, in charge of the 2nd mate with the master and the gunnery officer, 60 miles southeast of Madagascar. On 26 July, boat #2 in charge of the Chief mate, with eleven crewmen and eleven armed guards made land at Bazaruto Island, Mozambique. On 29 July, the boat #1 in charge of the Bosun, with 15 men landed near Lourenço Marques. On 30 July, boat #4 in charge of the Third Mate, with 22 men landed on the north shore of Madagascar.