Bearing signals

[Kapitan Soniboy]

I've been hanging out in the http://www.uboatarchive.net recently and taken time to read the u-boat KTB's. It's really exciting to read. But I have one question. When two uboats are planning to meet in the middle of the ocean they send bearing signals to each other. And when uboats are hunting off the coast of America they easily find US ships when the merchants send bearing signals to their base and to other ships. How do the bearing signal stuff work?

U-123 patrolled off the coast of USA during operation Drumbeat. Half way to its assigned area they picked up radio messages from a merchant (Could they read Allied radio messages? Not encrypted?) which requested a tug boat to help them out because their rudder stopped working. U-123 found the ship because of the bearing signals sent to the tug. U-123 had to break off because of thick fog and because they discovered that the merchant was accompanied by two destroyers (Too dark for a submerged attack and the fog was getting thicker and if the merchant was sunk the destroyers would have nothing else to do so that it would be hard for the uboat to escape).

So, the Germans could read and understand every message sent between Allied merchantmen and they could easily locate enemy freighters because of the bearing signals sent between them? Or have I misunderstood alot?

Thanks