On 29 January, she began her return journey. The ship had 40 crew, 55 passengers and a cargo of frozen fish on board and in addition to that 3.25 tons of archives concerning Greenlandic history. One of her passengers was the Danish parliament (Folketing) member Augo Lynge. The next day, "Hans Hedtoft" collided with an iceberg about south of Cape Farewell, the southernmost point of Greenland. A distress call was given at 13:56 (local time) stating that the ship had hit an iceberg at . The call was answered by USCGC "Campbell", the West German trawler "Johannes Krüss" of Bremerhaven and another West German trawler. Within an hour, another message was sent stating that the engine room was flooded. At 15:12, it was announced that the ship was sinking. A final message was sent at 17:41 stating the ship was slowly sinking and requesting immediate assistance. Aircraft in Newfoundland were grounded by the weather and unable to assist in the search for "Hans Hedtoft". The beginning of an SOS was received by "Johannes Krüss" at 17:41 after which communication with "Hans Hedtoft" was lost. On 31 January, USCGC "Campbell" reported that conditions were the worst seen and there was no sign of "Hans Hedtoft" or her passengers and crew. The search was called off on 7 February. The only piece of wreckage ever recovered was a lifebuoy which washed ashore on Iceland and discovered on 7 October 1959, some nine months after the ship sank. The ship sank with parish registers from parishes of Greenland, which were meant to be deposited in archives in Denmark, causing a major loss for Greenlandic genealogy.