Citizen Primer: Defense National Stockpile

Following the most recent Chinese announcement to restrict the world’s supply of rare earth elements (“REEs”), many have questioned who or what government entity is responsible for stockpiling REEs.

The Defense National Stockpile (“DNS”) is that entity. This organization is under the Defense Logistics Agency (“DLA”), a lesser-known organization within the Department of Defense (“DoD”). The official title of the unit responsible for purchasing, warehousing, and managing these materials is Defense Logistics Agency – Strategic Materials (“DLA-SM”). The DNS was created in the 1939 Strategic and Critical Materials Stockpiling Act. (50 U.S.C. §98, et. seq., as amended)

The DNS makes purchases through the National Defense Stockpile Transaction Fund (“NDSTF”), which Congress directly appropriates money for to conduct transactions on the open market. For FY 2025, President Budget Request (“PBR”) requested $7.6 million in new budget authority above its preceding year budget of $250 million. The Congress, however, increased the appropriation to $600 million for FY 2025. A surprisingly prescient decision.

As of March 2023, the NDS contained $1.3 billion in total assets, with ~$900 million of stockpiled material.

Essentially, the DNS is akin to the Strategic Petroleum Reserve (“SPR”). The DNS buys and sells critical materials, through the NDSTF. The DNS values its stockpiles based on market prices and routinely sells and buys to balance its portfolio. Interestingly, DLA-SM claims, “No private company in the world sells this wide range of commodities and materials.”

The Players

Let’s walk through which agencies participate in this program and how it works.

First, who decides what materials are critical? Officially, the President has the authority to determine which materials are strategic and critical. But since the Stockpiling Act was signed, other agencies have been delegated that authority. And it is genuinely an interagency effort.

Currently, the Department of Energy (“DoE”) is responsible for creating a definitive list of “critical materials”.( We must be careful, essential materials and rare earth elements are not equivalent.) REEs are critical materials but not all critical materials are REEs.

The Department of the Interior (“DOI”) and its subsidiary agency, the U.S. Geological Survey (“USGS”) make a definitive list of “critical minerals”, which is a designated subset of the DoE’s critical materials.

The DoD, through DLA and the Office of Industrial Base Policy (“OSD(IBP)”), generates an internal assessment of what the defense base requires, and adds that to the overall list. However, stating that DLA and IBP develop the list is not strictly true. (More on that shortly.)

And who is responsible for supervising DLA-SM and this process? A board of five individuals. Chaired by the Undersecretary of Defense for Industrial Base Policy and four others, “with demonstrated subject matter expertise.” Chosen by the chair.

Accountability and Nuance

In the 2021 and 2023 stockpile assessments, DLA monitored 283 candidate materials and incorporated 148 into formal NDS planning models. The stockpile assessment is typically generated biannually.

In 2023, the stockpile assessment revealed net shortfalls in 88 materials, valued at approximately $15 billion. In lay terms, NDS inventories only cover 37% of projected military shortfalls.

Now, the devil is in the details here, DLA and OSD(IBP) base their analysis on which of those items are expected to be in “material shortfall” in a national emergency scenario “consisting of a military conflict combined with an attack on the Homeland”.

The design is a “base case” scenario that lasts for four years. The first year is kinetic. The remaining three are years of post-conflict industrial recovery and replenishment.

And who comes up with these scenarios and projections? A federally funded research and development center (“FFRDC”), the Institute for Defense Analysis (“IDA”). IDA develops models, conducts research, and recommends procedures that incorporate a combat scenario provided by the Office of Undersecretary of Defense for Policy (“USD(P)”). This is where DLA-SM and Industrial Base Policy folks make their recommendations.

The problem is that these war projections are, obviously, classified. As Nobodies, we don’t know whether the projections are realistic or bureaucratically administered.

What we do know is that of the 53 materials were determined to be in shortfall and “strategic and critical” in a congressionally mandated, classified armed conflict scenario involving China. And of those 53 materials, 37 are entirely controlled by a “foreign market dominator”, e.g., China. And that 18 of the 53 materials, ~18% have zero domestic production at all.

And we’ve known that since 2021. At least.

Wrapping it up

Congress appropriates funds to the NDSTF to purchase strategic and critical materials. Those materials are decided by the IDA, DoD, DoE, and USGS agencies. NDSTF then purchases those target materials to stockpile across six locations in the United States.

DLA-SM oversees the entire process. A board, chaired by the Undersecretary of Industrial Base Policy, ensures that stockpiles are maintained and sold by DLA-SM in an effective and efficient manner.

And every two years, DLA-SM produces a report for Congress on the status of the national defense stockpile. In 2023, we were short 60% compared to the classified projections provided to IDA. 18 materials have no domestic production capabilities. And over 50% of our designated strategic materials are solely controlled by China.