This is the way the Shipment Method should work in VirtueMart 2.0+ and I'm sure the team will improve it in future. However, Web Expert has put together a nice Shipment by State plugin that allows you to include a state, province or region along with country.
I experienced a little problem at first and Stergios reacted promptly and fixed the issue overnight. All in all, I am delighted by this little plugin and it is well worth the cost.
My thanks to Web Expert on a task well done!