Big retailers make deals with shipping companies. They promise to use their shipping say FedEx exclusively for x amount of time and get y amount of discount for doing so. So say I have a website selling stuff that is heavy like car seats and I decide to ship exclusively with FedEx. My company and FedEx would then have a meeting. We would discuss how much product I shipped the year before, where my shipping went to, how much I already used their company, ect. What ends up happening is that they pay x amount of money for the entire year of shipping up to a certain amount, then FedEx agrees to cover it until you reach Y amount and then the rest of the shipping is going to be your companies responsibility.
For examples sake the deal would look something like this.
-I pay $1000 every year to fexEx for making this deal with me.
-FedEx allows me to ship for "free" up to $1600 worth of shipping every year at a very discounted price. So say something typically costs you $40 to ship it will not cost you $16 to ship instead. It isn't really "free" because I already paid them $1000 for making this deal with them, but the $1000 doesn't go as fast because I am also getting that discounted amount so I can ship more packages for $1000, but $600 would be technically free shipping.
-FedEx per the deal will allow this up to $1600 and then after that they will charge your company the normal shipping rates.
The shipping companies win out because it keeps them in buisness with boxes going in and out. These companies must ship with only their company and have to meet x amount of shipping obligation or pay the fines. They are also not stupid and won't make these deals with companies that they feel might go under or have less than the prior years shipping costs. This helps the companies because off and on throughout the year they can offer free shipping. Most of the online retailers offer it off and on throughout the year for short periods of time so say perhaps a week at a time, but in reality they aren't in their "free" part of their shipping yet, they are just taking in the costs for now and paying FedEx with their money until later when they aren't having a free shipping sale and your paying for shipping you don't need to. They also get some money because they will greatly discount big items on sale, but still charge shipping fees for it and they get to pocket those fees. It's all a tad complicated, but it works for both parties.
Now, websites that offer free shipping all the time have just knocked out their overheads is all. They don't have B&M stores, they don't have many employees, ect. so they don't need the retail mark up on these products. Say a certain car seat costs them $100 from the manufacturer, they sell it for $250 and pay shipping for you, but shipping is only $20, they are still making a $130 profit on the seat.
