Is there a way in magento to set shipping method based on items in order?

Is there a setting(s) in magento where if the order contains certain items, a shipping method will be selected by default?

There is no setting as far as I am familiar with Magento, but you can do it via extending the Mage_Sales_Model_Quote_Address method: requestShippingRates.

In your etc/config.xml file:

<global>
    <models>
        <modulename>
            <class>Package_Modulename_Model</class>
        </modulename>
        <sales>
            <rewrite>
                <quote_address>Package_Modulename_Model_Sales_Quote_Address</quote_address>
            </rewrite>
        </sales>
    </models>
</global>

In your Package_Modulename_Model_Sales_Quote_Address class, copy the method:

public function requestShippingRates(Mage_Sales_Model_Quote_Item_Abstract $item = null)

and inside, look for the following code:

$found = false;
if ($result) {
    $shippingRates = $result->getAllRates();
    //Add your code here:
    
    //Get all of the cart items.
    $_cartItems = $request->getAllItems();
    
    //Check if the cart contains items with specific shipping method:
    //Note that you need to implement the _getItemsShippingMethod yourself.
    $_shippingMethod = $this->_getItemsShippingMethod($_cartItems);
    
    foreach ($shippingRates as $shippingRate) {
        //Skip all other methods.
        if ($shippingRate->getCarrier() != $_shippingMethod) {
            continue;
        }