There is a maximum height that you can raise/lower terrain from its starting height (IIRC its 8 meters). If you are on the shore lowering terrain with your pick there is only so far you'll be able to drop it before you can't reach it. If you are in the water and lowering the terrain makes you begin to swim your pick will unhighlight and you won't be able to rehighlight it again until you aren't swimming.

Another word of warning, if you are building out into ocean where your ship can be affected by waves, having solid objects above it or rocks/trees/logs under it (but not dirt) will damage the ship as it bobs up and down in the waves. Eventually this will destroy the boat and if the water is deep when the waves are calm the non-wood parts of the boat will sink to a point where you can't ever recover them.