I sell on eBay quite often, and in most cases I prefer to offer free shipping, unless the item is of substantial weight and I pay a professional to package it, whereby the cost becomes too much to bear and it makes better sense to be open about all costs.
However, most items I ship cost about $5 for USPS Priorty Mail, which doesn't much bother me to eat the cost, because I still have good margins, and listings with free shipping often do better.
Other times, shipping may cost $10, at which point I may or may not include the shipping cost in the price of the item, all determined by the margin. Yet, in no case has the time made a difference in determining what I offer, be it free shipping or not.
To add to what Scott said, one thing we have encountered in the past is a Company will work out a contract flat rate agreement with a shipping company (UPS/Fedex/etc) and if they offer their products in say 3 countries they will average the shipping cost across all three countries (sometimes even weight the average moreso towards the most shipped to out of the three). They will then use that average number and calculate it into the COG (Cost of Goods).
This way it never is a loss in profits but its an amount that is actually factored into the product's cost to the Company; this way when they keystone the product for retail/distribution pricing the customer is actually paying more for the shipping then they actually would have if they just paid the shipping rate - BUT the Company puts on a good face because they offer "free" shipping.
To put it into an example;
You build widgets that cost $4 to build. Shipping costs $2 to the US, $3 to Canada and $6 to the UK. The US accounts for 75% of your sales, 15% come from Canada and 10% come from the UK. So effectively you'd come out with a weighted average of $2.55 (if my math is correct) for shipping bringing your COG to $6.55. You keystone at say 1.5 for distributors/wholesale and 3 for retail so your wholesale prices are going to be $9.83 and $19.65 - because you've calculated your shipping into your COG you've charged each wholesale distributor $3.83 and each retail customer $7.65 for shipping but you've included it in the price; you then can market it as being free shipping even though you've more then covered your shipping costs in the case of B2C.
Exactly. There should be no guilt with making a few cents - ? on this category as if someone is going to pay $5.75 as an example for shipping then $5.95 is not an issue. I also suggest using a .50 or .95 or .99 cent ending. Think of it like a gas station . You never see anyone selling gas for $3.00 per gallon. It's most likely $2.99 9/10 all in. It's totally a mind game but you should control the outcome.