Im not sure if it applies in game, but Ideally you'd want to use HE on unarmored, thin skinned targets, use AP for armored targets(anything bigger than a Destroyer)
The AP shells would theoritcally leave only a small hole in the merchants ships no bigger than your fist (assuming they are only kinetic rounds with no explosive charge), allowing for less flooding, the HE on the other hand would take that same ship and put a hole in it big enough to fit your head through if not your torso.
Most of the HE damage will be on the hull, but if you desire to damage internals like engines and stuff, you want to use well placed AP. The AP on the engines would certainly cripple the ship eliminating is abilty to maneuver and get away, but the AP's contribution to sinking would be minimal unless it set off a secondary explosion.
The HE on the other hand will cause the big gaping holes that will allow for flooding while possibly setting off fuel easier than AP, thus making HE more likly to set off those catastrophic secondary explosion to really rip the ship up, causing structural failure.
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