I would accomplish that sort of shipping markup by using the custom shipping, but not each item in basket. The reason I would not select this is because that option is not exactly "each item in basket". It's really a "per pound" feature. You should mark each item as 1 pound, though, so you can keep track of the number of products by the number of pounds in the basket, sort of as a flag. So, I would set up my table accordingly: (weight low, weight high, price, dropdown box)
0, 1, 12.99 Entire Basket
1.1, 2, 15.98 Entire Basket
2.1, 3, 18.97 Entire Basket
3.1, 4, 21.96 Entire Basket
and so on. A bit cumbersome, but it will get the job done exactly as you want.
If you had only one flat fee off the top, this could be done even easier, using a handling fee for, lets say, the $10 fee, then each item in basket would be used, and you would put your per product rate up. So, it would look like this, with the handling fee set at 10.
0, 1000000, 2.99 Each Item in Basket
And that's it. So, it will calculate $10 + 2.99 per pound. Since you can only specify one handling fee now, you will need to do it as above to accomodate your needs. Perhaps down the road we can implement a handling fee per shipping method to help out with this.
Hope this helps!