In the early morning hours of Thanksgiving Day, November 26, 1964, the STOLT DAGALI was steaming toward Newark with her cargo of Philippine coconut and vegetable oils. The 25,320 ton Israeli passenger liner SHALOM was heading from New York to the West Indies with passengers and crew. In heavy fog and building seas the two ships collided. The SHALOM suffered a 40' gash in her bow just above the water line, but the STOLT was cut in two. "My whole stern has disappeared." were the damages radioed to the Coast Guard minutes after the collison. About 160 feet of the stern and 19 of the STOLT's 43 crew went to the bottom together. The abandoned bow of the STOLT remained afloat and was towed to Staten Island two days later.

The owners of the two vessels began a bitter court battle with accusations and denials coming from both sides. It is apparent that both vessels must share blame for the collision. The SHALOM's radar was inoperative and, for some unknown reason, the back-up radar was not used. In addition, the SHALOM's lookout was away from his post getting a cup of coffee up to the time of the collision. The STOLT, however, had detected the presence of theSHALOM on radar for at least 11 miles prior to the incident, yet failed to slow its speed or take action to avoid the collision.

Three months after the collision the surviving 440' bow section of the STOLT was made seaworthy and towed from New York to Sweden. It was joined to the 140' stern section of the C.T. GOGSTAD, which had wrecked in the Swedish waters two weeks after the STOLT collision. The two sections were almost a perfect match. The resulting Frankenstein ship they formed was named the STOLT LADY.