Shipping rates are not only based on item weight, but on the dimensions of the item as well (l x w x d).
From what I can see, by default Shopify does not allow me to enter these dimensions for my individual product.
Am I missing some configuration item that will allow me to do so? My online business is going to take a hit if the carriers think all of my products occupy zero physical space.
As you have mentioned, by default Shopify does not have an option to enter the product dimensions. Shopify only allows you to calculate shipping rates based on product weight. But yes, the shipping rates depends on the dimensions as well.
To calculate the rates based on product weight as well as dimensions, you will have to use an app like our Multi Carrier Shipping Label. The app allows you to add product dimensions, integrate with all top carrier and helps you automate the complete shipping process. Also, with the packing automation, you can add custom boxes based on product dimensions and automatically choose the right box.