This is a big challenge for retailers to offer free shipping to their customers and still retain their margin. Indeed this eats up the margin and nobody wants that. However, the customer is tired of paying for shipping, he has the expectation this to be free. Either you eat up the margin or roll it into the original price. With the current fight over pricing on the internet, the second seems difficult. Indeed customers are always looking for the best price and will just look up online which retailer is providing the best price for the same product.
Does that mean that online margins are going to shrink even further? It is likely. I would feel weird for customer to roll up the shipping cost on the product right now. We might be able to do it for new products and overall but it can only happen gradually and partially.
In the customer constant quest to get the best price, free shipping plays a big part of this equation. Free Shipping. Org is updating every day the free shipping offers. Free shipping has become a commodity for customers and retailers do need to understand this.