Unless you've edited the default settings for how TC works, whenever you spot a convoy (or any other vessel) it should automatically drop out of a higher TC and back to real time or at least a much lower TC.
So, yeah, if you are running at 128 (or higher TC) and a convoy comes within range, you should drop back to a lower TC. That's not to be confused with the "lag" that sometimes happens when a lot of activity is going on and there are many units being rendered in a small area, like a convoy appearing in range or when you're in a crowded harbor area going to and from base. Things can get a little laggy or choppy then, it sometimes happens to me especially when I attack a convoy and all hell breaks loose.
My first time sailing into Lorient the lag got so bad that the screen completely froze up several times - no CTD and I was able to dock OK but I was really nervous. I start patrols from sea now, the French bases may be a little more than my system can handle without killing the framerate.
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