You recently negotiated a contract with one of the major national parcel carriers. The discount you hammered out will save your company lots of money, and everyone will be happy.

And they are—until the bills start rolling in. That's when you find out that those discounts don't apply on certain shipments, that a general rate increase has raised your rates even though you have a contract, and a slew of extra charges have added 20 percent or more to your total bill. What happened? Chances are, you negotiated a parcel contract without a thorough understanding of the factors that determine what you would actually pay.

How can you make sure you get what you want in a parcel shipping contract? We asked some former carrier executives to tell us how to get the best possible deal when you sit down at the table with the major parcel carriers. Here are eight tips from those in the know:

Get all the facts on your shipment characteristics. There's no point in negotiating with a parcel carrier if you don't know quantities, sizes, weights, applicable surcharges, and origins and destinations for each package you ship, says Michael Erickson, president of parcel shipping consultants AFMS Inc. in Portland, Ore. "If you don't have that information," he says, "you're negotiating in the dark." But that doesn't mean you have to spend hours poring through old shipping reports, says Pittsburgh, Pa.-based consultant Satish Jindel, a former RPS executive. Many shippers collect that information with software that can create package-by-package and aggregate shipping reports.

Carriers use those details, which they glean from automated parcel shipping systems and their own internal information systems, to identify how much it costs them to handle your business. "The carriers know more about your package characteristics than you do," warns Brett Febus, managing partner of ShipSave Consulting in Hilliard, Ohio, and a former UPS sales manager. Without that information, he says, you'll be at a disadvantage because you'll be working with potentially inaccurate estimates while the carrier has actual package-level data. Febus recommends asking to see rate calculations based on your actual shipping activity for one or more sample weeks. Be realistic about your volumes, he adds. If you overestimate and then fall below negotiated volume and revenue levels, you'll lose the discount you fought so hard to get.

Find out what's profitable for carriers and what's costly for them to handle. Certain shipment characteristics are more attractive to carriers than others because they yield bigger profits—and because most sales reps' commissions are tied to the profitability of the business they bring in. Desirable business includes high-margin, premium shipments as well as those that are relatively cheap to handle on a per-package basis, such as a large number of parcels delivered to a single destination near a major package hub.

Carriers are more flexible with discounts on high-margin business than they are on low-margin shipments such as rural and home deliveries, Febus says. One way to find out how profitable your business is to carriers: ask what they like or don't like about your shipments, suggests Dwight Sigworth, AFMS's vice president of operations. Then, ask if changing any of the undesirable characteristics would reduce their handling costs—and allow them to offer bigger discounts.

Get familiar with carriers' pricing policies. Parcel shipping prices are based on rolling averages, revenue tiers, cell-by-cell pricing and net revenue per piece. Rolling averages represent average weekly revenue levels during the most recent 13-week period; in the 14th week, the first week drops off and is not included in the calculation. In the 15th week, weeks one and two drop off, and so on.

Rolling averages are used in conjunction with revenue tiers—"bands" or ranges of weekly average revenue you provide to the carrier. The higher the tier, the deeper your discount. Which revenue tier and discount apply depends on the rolling average for that week. If your rolling average falls below a minimum level, moreover, you'll get no discount at all. (For examples of how rolling averages and revenue tiers affect discounts, click here.)

Parcel carriers also use "cell-by-cell" pricing, which applies to specific zone and weight combinations, because it lets them maximize per-package profits. (Zones are destination regions, numbered 2 through 8. The further the distance from the point of origin, the higher the zone number.) For example, packages weighing between 0 and 5 pounds destined for Zone 4 would be one cell. Packages weighing between 6 and 10 pounds destined for Zone 8 would be another cell.

Most parcel contracts also include a "minimum net revenue per piece" for individual parcels to qualify for the negotiated discount. Usually, it's the standard $3.23 rate for a Zone 2, one-pound package, according to Sigworth. "If you have packages that fall below that threshold, that effectively negates your discount on lower-weight packages," he says. An analysis by AFMS shows that the minimum restriction not only eliminates discounts on parcels weighing one pound or less in all zones, but it also can effectively reduce the discount on larger packages in Zones 2 through 5. (For a look at that analysis, click here.)

Take a good hard look at the accessorial charges. Add-ons like fuel surcharges, rural delivery surcharges, excess tracking fees, and more—nearly 70 individual surcharges between the three largest parcel carriers alone—typically raise shipping costs by 15 percent or more, says Doug Caldwell, senior pricing analyst at AFMS and a former U.S. Postal Service executive. Shippers often don't realize how many of their shipments are subject to extra fees and how quickly they add up, especially since they often are billed separately from the base freight charges. Examples include $10 per-package address-correction fees and over-dimensional charges that treat packages exceeding certain dimensions as if they weighed 50 or 70 pounds, regardless of their actual weight.

Discounts on accessorial charges are extremely rare, says Jindel. Knowing which of your shipments will be subject to surcharges will give you a more realistic picture of how much revenue the carrier will be getting from your business, he says, allowing you to justify a bigger discount on freight rates.

Review the tariffs and terms and conditions. It's surprising how few shippers thoroughly read and analyze these documents, which are jam-packed with restrictions that shippers would find unacceptable in other transportation contracts, says lawyer William J. Augello, executive director of the Transportation Consumer Protection Council. It may be possible to negotiate a waiver of unacceptable terms, although chances are slight that the big parcel carriers will make such concessions. Besides, says Febus, if a carrier deviates from its standards in one area, you can be sure it will make up for lost revenue with added costs somewhere else in the contract. (For a sampling of restrictive terms and conditions, see "Why You Need to Read the Fine Print" on Page 44.)

Don't let the carrier control the pace and structure of the negotiations. "Oftentimes shippers don't realize how many cards they have to play and in what order to play them," says Febus. "They count on the carriers to guide the negotiation process, and the carriers are more than willing to do that." Set realistic objectives, keep your eye on the ball, and don't let the carrier make the negotiation complicated or make you deviate from your objective, he recommends. "If you get into element-by-element discussions with a carrier," he warns, "you're going to lose."

Instead, some shippers find that giving carriers a straightforward mandate, such as cutting total costs by 6 percent, works best. The shipper also benefits by setting the tempo of the negotiations, Febus adds. "Typically, [the carriers] want to make this a long, drawn-out, complicated process ... they want you to give up and just say 'I'm tired of this, show me the offer you have,' sign it, and go away."

Make sure the contract covers everything you ship with that carrier. Caldwell has seen contracts where shippers negotiated discounts on commercial deliveries or ground service, which made up the bulk of their volume, but failed to include lower-volume (but higher-margin) air or home deliveries that they shipped with the same carrier.

Another pitfall, says Erickson, is failing to include a "third-party" clause in your contract that ensures discounts will apply to packages that agents make on your behalf. These clauses apply only if the agents use your account number.

There are cases, of course, when shippers want to split their business among several carriers. To prevent that, a carrier may offer "portfolio pricing," with discounts for different types of service that apply only if you give it all of your business. Think carefully before accepting portfolio pricing, says Febus. You may be able to get those same discounts by negotiating separate contracts for each service level, which leaves you free to switch some business to another carrier without affecting your other discounts.

Renegotiate when business conditions change. Contracts can last anywhere from one to five years, with two to three years being the most common. But you needn't wait until the end of the contract period to renegotiate, says Jindel. Most contracts allow renegotiation on 30 days' notice, and it's wise to do so when shipment volumes and revenue levels change to such an extent that it reduces your discount. Erickson notes that many shippers pay the price for failing to monitor their shipment activity after they've signed a contract. "A year into the contract," he says, "they suddenly realize that maybe business isn't as good as it was and their rolling averages have dropped."

There's never been a better time to negotiate parcel contracts, according to Erickson. Not only are shipment volumes down substantially because of the soft economy, but DHL's recent announcement that it intends to enter the U.S. domestic ground delivery segment means there soon will be more competition for shippers' business.

When it comes to contract negotiations, the big parcel carriers will never be as flexible as carriers in other modes, which face much stiffer competition. Yet it's worthwhile asking for what you want if you can make a strong argument that it is in the carrier's best interest to make those concessions.

Ultimately, the strength of your negotiating position relates directly to how much you know. It's not unusual for two shippers with the same shipping profile using the same carrier to have very different rate structures, Jindel says. "It's all a function of who was better prepared to negotiate."