As he sings in his boat on the bay! (8)
The "sailor lad," too, seems totally oblivious of the speaker's sorrow – he's singing away like he doesn't have a care in the world, because he probably doesn't.
But O for the touch of a vanish'd hand,And the sound of a voice that is still (11-12)
The speaker breaks down and expresses his longing for the presence of his dead friend beginning with that moaning "O." The conjunction "But," with which he separates his own sad longing from the business of the "stately ships," suggests how out of sync his sorrow is with the busy activity of the rest of the world.
But the tender grace of a day that is deadWill never come back to me. (15-16)
The speaker realizes that time goes on, and he'll never be able to relive the days that he spent with his dead friend.