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What is the best way to set up escorts for a transport convoy - include the escort warships in the Transport TF along with the AKs APs etc, or set up a separate Escort TF with orders to follow a Transport TF which wouldn't contain any warships itself?

If it is a major convoy, both ways actually.

Always have some destroyers (with Depth Charges) actually in the Task Force in question. But if it is a really major convoy, have a surface combat TF (or escort TF) with follow orders. Put your heavy ships in this one. Now there is an upside downside to this. Battleships in cruisers in the actual convoy (the transport TF) will attempt to cover the withdrawl of the transports, and as such won't engage with the object of defeating the enemy, but in buying time for the majority of ships to escape. However escorting ships NOT in the transport TF will be free to engage the enemy, irregadless of the transports.

So my theory, if your escorts include 5 predreds, 2 cruisers, and 8 destroyers is put 2 predreadnoughts and four destroyers with the convoy. This will aid in keeping the enemy back enough to allow most of the transports to withdraw. Use the rest of your ships as a combat TF following the transports.

Unless it is absolutely unavoidable, do not use dreadnoughts (BBs with 20+ knots, or more than 4 main guns) as convoy escorts with the convoy. They are much too valuable to be sacrificed to protect transports. Use Predreadnoughts to cover the transports (in the TF) while your dreadnoughts are in the accompanying escort TF, ready to blast the enemy.

Thanks!

well I'm using only destroyers and slow cruiser for escort duties (they are part of convoy TF) and some times for important convoys I set up Surface TF (dreadnoughts) with follow orders, problem is that sometimes they are one hex behind...refueling probably

Some people proposing mid-ocean intercept within range of React setting, I don't agree with only exception. Surface TF should react for distress calls when other friendly TF is engaged within react range (like they react against enemy when base is invaded or bombarded)..it will be great for patroling TFs along convoy routes.